Question

For every 1% increase in

Answer 1

Answer:

The GDP gap is 9 % when there is 4.5 % unemployment.

Step-by-step explanation:

The statement shows a reverse relationship, where an increase in unemployment is following by decrease in potential GDP and can be translated into the following rate:

$r = \frac{2\,\% \,GDP}{1\,\% unemp.}$

The GDP gap at a given increase in unemployment can be estimated by the following expression:

$\frac{g}{u} = r$

$g = r\cdot u$

Where:

$r$ - GDP gap-unemployment increase rate, dimensionless.

$u$ - Increase in unemployment rate, measured in percentage.

$g$ - GDP gap, measured in percentage.

If $r = \frac{2\,\% \,GDP}{1\,\% unemp.}$ and $u = 4.5\,\%\,unemp.$, the GDP gap is:

$g = \left(\frac{2\,\%\,GDP}{1\,\%\,unemp.} \right)\cdot (4.5\,\%\,unemp.)$

$g = 9\,\%\,GDP$

The GDP gap is 9 % when there is 4.5 % unemployment.