Final answer:
Okun's law indicates that a 2% increase in unemployment correlates to a 4% increase in the output gap between actual and potential GDP.
Step-by-step explanation:
According to Okun's law, if unemployment increases by 2%, the gap between actual output and full-employment output will increase by 4%. Okun's law posits a inverse relationship between changes in the unemployment rate and the growth rate of real GDP, suggesting that for every 1% increase in the unemployment rate, a country's GDP will be an additional roughly 2% lower than its potential GDP. Thus, an increase in unemployment is linked to a higher output gap.
According to Okun's law, the gap between actual output and full-employment output is related to changes in the unemployment rate. Okun's law states that for every 1% increase in the unemployment rate, there is a 2% decrease in the output gap. Therefore, if unemployment increases by 2%, the output gap will increase by 4% (2% increase in unemployment x 2% decrease in output gap per 1% increase in unemployment).
For example, if the current unemployment rate is 5% and it increases to 7%, the output gap will increase from its initial value by 4% (2% increase in unemployment x 2% decrease in output gap per 1% increase in unemployment).