The natural unemployment rate is 4 percent and the actual unemployment rate is 7 percent. According to Okun's Law, how does of real GDP compare to potential GDP?
What will be an ideal response?
The gap between the natural unemployment rate and actual unemployment rate is 7 percent minus 4 percent, which is 3 percentage points. According to Okun's Law, for each percentage point gap in the unemployment rate, there is a 2 percent gap between real GDP and potential GDP. So real GDP is 3 percent × 2 = 6 percent below potential GDP.
You might also like to view...
Assuming there are no capital gains, a nation's wealth at the start of a year is equal to the wealth at the start of the previous year plus
A) income. B) nothing because wealth does not change from one year to the next. C) income minus saving during the year. D) saving during the year. E) saving minus depreciation during the year.
Using the figure above, which of the following statements are correct?
i. When 3 haircuts are produced, the firm's ATC is $10. ii. If the firm charges each customer the same price for a haircut, the price of a haircut is $14. iii. The firm is NOT a perfect competitor. A) i only B) ii only C) i and ii D) i and iii E) i, ii, and iii
A tariff makes the total economy
A) better off because it increases the domestic production of the good. B) better off because it decreases the deadweight loss from international trade. C) worse off because it creates a deadweight loss. D) worse off because it creates revenue for the government. E) worse off because it decreases both domestic consumer surplus and domestic producer surplus.
"Excludability" means that:
A. buyers can restrict other buyers from making purchases in that market. B. government can prevent consumers from buying the good. C. when one person buys a good, it is not available for others to buy. D. sellers can restrict the benefits of a good to those who pay for it.