In Okunland,a country that operates according to Okun's law,potential GDP equals $8,000 billion,the actual rate of unemployment is 8%,and the natural unemployment rate is 5%.What is actual GDP in Okunland?

Question

Quizplus · Accepted Answer

According to Okun's law, for every 1% increase in unemployment above the natural rate of unemployment, actual GDP falls by 2%. In this case, the actual unemployment rate is 3 percentage points above the natural rate (8% - 5% = 3%). Therefore, actual GDP is 6% below potential GDP (2% decrease in GDP for every 1% increase in unemployment above the natural rate). 6% of $8,000 billion is $480 billion, so actual GDP is $8,000 billion - $480 billion = $7,520 billion.

In Okunland,a Country That Operates According to Okun's Law,potential GDP