Question

Okun's law expresses the relationship between:

A. unemployment and inflation.

B. the money supply and the velocity of money.

C. frictional unemployment and structural unemployment.

D. cyclical unemployment and the output gap.

Answer 1

Okun's law demonstrates the relationship between cyclical unemployment and the output gap, indicating how changes in the unemployment rate affect a country's actual versus potential economic output.

Step-by-step explanation:

Okun's law expresses the relationship between cyclical unemployment and the output gap. This economic concept illustrates how a nation's economic output differs from its potential output when the unemployment rate changes. In essence, according to Okun's law, when the unemployment rate increases, it indicates that the economy is producing less than its potential, which is the output gap. Conversely, when unemployment decreases, the economy moves closer to its potential output.