Final answer:
Okun's law suggests that a 1% increase in cyclical unemployment is associated with a 2% decrease in GDP from its potential. Therefore, the correct answer to the student's question is B: the recessionary gap would widen from -4 percent to -6 percent. The increase in the U.S. unemployment rate from 2001 to 2002 is more likely due to cyclical unemployment related to an economic downturn.
Step-by-step explanation:
Understanding Okun's Law and Unemployment Patterns
Okun's law provides a relationship between cyclical unemployment and the growth rate of an economy's real gross domestic product (GDP). According to this empirical economic observation, for every 1% increase in the cyclical unemployment rate, a country's GDP is expected to be an additional roughly 2% lower than its potential GDP. Therefore, if cyclical unemployment increases from 2 to 3 percent, the recessionary gap would widen by approximately twice the unemployment change. This implies that the correct answer to the initial question is B: from -4 percent to -6 percent.
When considering the increase in U.S. unemployment rate from 4.6% in July 2001 to 5.9% by June 2002, it is more likely to be attributed to cyclical unemployment rather than a change in the natural rate of unemployment. Cyclical unemployment is caused by downturns in the business cycle, such as recessions, whereas the natural rate of unemployment represents structural factors in the labor market that persist over a longer term. Given that the time frame of less than a year is relatively short and it coincides with an economic downturn, this indicates an increase in cyclical unemployment.