Suppose an economy's natural rate of unemployment is 5 percent. If the unemployment rate is 7 percent, according to Okun's law, $\tilde { Y }$ is:
A) 4 percent
B) -4 percent
C) 2 percent
D) -2 percent
E) Not enough information is given.

Question

Quizplus · Accepted Answer

Okun's law states that the output gap is equal to the difference between the actual unemployment rate and the natural rate of unemployment multiplied by 2. In this case, the output gap is 7% - 5% = 2%. Therefore, the correct answer is B) 4 percent.

Suppose an Economy's Natural Rate of Unemployment Is 5 Percent Y~\tilde { Y }Y~

Suppose an Economy's Natural Rate of Unemployment Is 5 Percent $\tilde { Y }$