In Okunland, a country whose economy operates according to Okun's law, real GDP equals $7,520 billion,...

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Question

In Okunland, a country whose economy operates according to Okun's law, real GDP equals $7,520 billion,...

In Okunland, a country whose economy operates according to Okun's law, real GDP equals $7,520 billion, potential GDP equals $8,000 billion, and the actual unemployment rate is 8 percent. What is the natural rate of unemployment in Okunland?

Multiple Choice

11 percent
2 percent
5 percent
6 percent

business economics

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Answer 1

Answer #1

ANSWER:

Difference between potential and real output = 8,000 - 7,520 = 480

% of output below potential = (Difference between potential and real output / potential gdp) * 100 = (480 / 8000) * 100 = 0.06 * 100 = 6%

Each % above the natural rate of unemployment translates towards 2% negative output gap and , so the unemployment rate is 3% more then the natural rate.

natural rate = actual unemployment rate - 3% = 8% - 3% = 5%

so the correct answer is option c that is 5%.

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Answer 2

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