Final answer:
According to Okun's law, if the actual unemployment rate is 1% higher than the natural rate, the GDP gap is approximately 2%. The natural rate of unemployment provides an indication of an economy's potential GDP and can reflect various economic changes over time.
Step-by-step explanation:
If the natural rate of unemployment is 5.5% and the actual unemployment rate is 6.5%, according to Okun's law, we can calculate the GDP gap. Okun's law suggests that for every 1% increase in the unemployment rate above the natural rate, a corresponding 2% decrease in actual GDP occurs compared to potential GDP. Therefore, if the actual unemployment rate is 1% higher than the natural rate (6.5% - 5.5% = 1%), we would expect the GDP gap to be approximately 2% of potential GDP. Okun's law postulates a clear relationship between unemployment rates and real GDP. When the unemployment rate is greater than the natural rate, it is an indicator that the economy is performing below its potential, which means that real GDP is likely below potential real GDP. Conversely, if the unemployment rate were below the natural rate, it would suggest the economy might be producing above its potential.
The natural rate of unemployment estimates by economists for the U.S. economy have varied over time, reflecting changes in market conditions, technology, demographics, and labor market policies. The early 2000s saw a lower estimated natural rate of 4.5 to 5.5%, suggesting improvements in these areas. However, significant economic events like the 2008-2009 Great Recession have shown that these rates can fluctuate broadly in response to economic shocks.