Question

Potential real gdp = $200 billion natural rate of unemployment = 6 percent actual rate of unemployment = 12 percent refer to the accompanying data, which is for a specific year in a hypothetical economy for which okun's law is applicable. the size of the negative gdp gap as a percentage of potential gdp for the economy is

Answer 1

Answer:

12%

Explanation:

Given that,

Potential real GDP = $200 billion

Natural rate of unemployment = 6 percent

Actual rate of unemployment = 12 percent

Okun's law refers to the law which states the relationship between the losses in the production of a particular nation and the unemployment.

It also indicates that for every 1 percent, the actual rate of unemployment exceeds the natural rate of unemployment, then as a result there is a GDP gap of 2% is generated.

Cyclical unemployment:

= Actual rate of unemployment - Natural rate of unemployment

= 12% - 6%

= 6%

Negative GDP gap:

= 6% × 2

= 12%

Therefore, the of the negative GDP gap as a percentage of potential GDP for the economy is 12%.