Question

#4 (4 points) In Q4 of 2019 the real potential GDP was $19,099.88 billion. Use this fact to answer the following: a) What would the output gap be if the actual real GDP in Q4 of 2019 was $19,220.49 billion? b What was the cyclical unemployment rate? (use Okun's Law) c) What was the actual unemployment rate in December 2019? (You'll have to look this up on the Fed or BLS website. Use the "official" U3 measure.) 3.5% d Use parts b) and c) and the following equation to compute the natural rate of unemploy- ment. | U = UI-Up where U" is the natural rate at time t, U, is the actual unemployment and Up is the cyclical unemployment rate that you computed in part b).

just looking to check my answers for a, b, and d. please show me how you solved each part as well, thanks!

Answer 1

A. As we know, An output gap indicates the difference between the actual output of an economy and the maximum potential output of an economy expressed as a percentage of gross domestic product (GDP).

(Actual GDP-Potential GDP)/Potential GDP

So,

Output Gap=(19220.49-19099.88)/19099.88

=.63%

B. Okun's law in mathematical form is

2(unemployment rate – natural unemployment) = ? potential GDP – actual GDP - x 100% potential GDP

Putting values in, we get

2*cyclical unemployment=-.63

cyclical unemployment=-.315%

D. The total actual unemployment was 3.5%. Putting values in, we get

Natural rate of unemployment=3.5%-(-.315%)=3.815%