The following information is for a specific year in a hypothetical economy for which Okun's law is applicable:
Potential Real GDP = $200 billion
Natural rate of unemployment = 6 percent
Actual rate of unemployment = 12 percent
-The amount of output being forgone by the above economy is:
A) $12 billion.
B) $15 billion.
C) $18 billion.
D) $24 billion.

Question

Quizplus · Accepted Answer

Okun's law states that for every 1% increase in the unemployment rate above the natural rate, a country's GDP will be roughly an additional 2% lower than its potential GDP. The unemployment gap is 6% (12% - 6%), so the GDP gap is 12% (6% * 2). Therefore, the forgone output is 12% of $200 billion, which is $24 billion.

The Following Information Is for a Specific Year in a Hypothetical