GDP gap is the difference between : Optimum GDP at natural rate of unemployment , & actual GDP (at actual unemployment rate).
Higher the difference between natural & actual rate of unemployment, means higher GDP gap of actual GDP below full optimum GDP.
Okun's Law states that : for each 1% percent gap between natural unemployment rate & actual unemployment rate, twice GDP gap of 2% below optimum potential GDP occurs.
This actual rate of unemployment (10%), ie higher than natural rate of unemployment (8%), by a margin of 2%. So, GDP gap would be 2 x 2 ie 4%.
Let optimum potential GDP be = Y. Optimum potential GDP - 4% of (Optimum potential GDP) = Actual GDP
Y - 4%Y = 500 → 96% Y = 500 → Y = 500 x 100 / 96 = 520
Y (optimum potential GDP) = 520.
So, GDP GAP = Optimum potential GDP - Actual GDP (nominal GDP) = 520 - 500 = 20
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