In an economy,nominal GDP is $4,000 billion,the actual unemployment rate is 8%,and the natural rate of unemployment is 6%.According to Okun's law,there will be

Question

Quizplus · Accepted Answer

Okun's law states that for every 1% increase in the actual unemployment rate above the natural rate, there will be a 2% decrease in potential output.

In this case, the actual unemployment rate is 2 percentage points higher than the natural rate (8% - 6% = 2%). Therefore, potential output will be 4% lower than it would be at the natural rate of unemployment (2% increase x 2 = 4% decrease).

4% of $4,000 billion is $160 billion, so the answer is choice C.

In an Economy,nominal GDP Is $4,000 Billion,the Actual Unemployment Rate