In Macroland,a country that operates according to Okun's law,actual GDP is $9.6 trillion,the actual rate of unemployment is 8%,and the natural unemployment rate is 6%.What is potential GDP in Macroland?

Question

Quizplus · Accepted Answer

Okun's law states that a 1% increase in the unemployment rate is associated with a 2% decrease in GDP. In this case, the actual unemployment rate is 8% and the natural unemployment rate is 6%, so the output gap is 2% (8% - 6%). Therefore, potential GDP is $9.6 trillion / (1 - 0.02) = $10.0 trillion.

In Macroland,a Country That Operates According to Okun's Law,actual GDP