Question

If the natural rate of unemployment was 6 percent, the current unemployment rate was 8 percent, and potential GDP was $4,000 billion, then according to Okun's law the economy would have sacrificed Multiple Choice $160 billion in output not produced. $360 billion in output not produced. $240 billion in output not produced. $480 billion in output not produced.

Answer 1

a. $160 billion in output not produced.

Step-by-step explanation:

Okun law equation

GDP gap = Actual GDP * ((Unemployment rate -Natural rate)/100)*2

GDP gap = $4,000*((8-6)/100)*2

GDP gap = $4,000*(0.02)*2

GDP gap = $4,000*0.04

GDP gap = $160

Therefore, according to Okun's law, the economy would have sacrificed $160 billion in output not produced.