Question

a) If a country's natural unemployment rate is 5 percent and its actual unemployment rate is 3.5 percent, what is its cyclical unemployment rate?    percent

Instructions: Enter the value for the output gap as an absolute number.

b) According to Okun's law, this country would have   (Click to select)   an expansionary   a recessionary  output gap of  percent.

Answer 1

Answer:

A] Natural unemployment rate= 5 percent

Actual unemployment rate= 3.5 percent

Cyclical unemployment = Actual unemployment rate - Natural unemployment rate

Cyclical unemployment = 3.5%-5%= -1.5%

Cyclical unemployment = 1.5%

with 1.5% cyclical unemployment, this country would have an expansionary output gap of 1%