Suppose an economy's natural rate of unemployment is 5 percent.If the unemployment rate is 7 percent,according to Okun's law,
is 4 percent.

Question

Suppose an economy's natural rate of unemployment is 5 percent.If the unemployment rate is 7 percent,according to Okun's law,  
is 4 percent.

Quizplus · Accepted Answer

Okun's law states that for every 1 percent increase in the unemployment rate above the natural rate, there will be a 2 percent decrease in real GDP. Therefore, if the unemployment rate is 7 percent (2 percent above the natural rate), there will be a 4 percent decrease in real GDP, not a 4 percent decrease in the unemployment rate.

Suppose an Economy's Natural Rate of Unemployment Is 5 Percent