According to Okun's Law, if GDP increased by 6%, the unemployment rate would decrease by

Question

Quizplus · Accepted Answer

Okun's Law states that for every 1% increase in GDP above its potential level, there will be a 2% decrease in the unemployment rate. Therefore, if GDP increased by 6%, the unemployment rate would decrease by 2 x 6 = 12 percentage points. However, the question asks for the decrease in the unemployment rate if GDP increased by 6% in general, without specifying whether this increase is above or below potential. Assuming that the increase is above potential, we can apply Okun's Law to get the answer: 2 x 6 = 12% decrease in the unemployment rate. To convert this to the actual decrease in percentage points, we need to multiply by the current unemployment rate, which is not given in the question. Therefore, the closest choice is B, which corresponds to a 2 percentage point decrease in the unemployment rate.

According to Okun's Law, If GDP Increased by 6%, the Unemployment