Question

Refer to the accompanying data, which is for a specific year in a hypothetical economy for which Okun's law is applicable. The amount of output being forgone by the economy is

Answer 1

Answer:

A) $24 billion

Explanation:

Here is the complete 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 amount of output being forgone by the economy is

C) $15 billion. D) $18 billion. A) $12 billion. B) $24 billion.

According to Okun's law, a 1% decline in unemployment results in a 2% fall in potential GDP

Decline in unemployment = Actual Rate of Unemployment - Natural Rate of Unemployment

12 - 6 = 6%

decline in output = 6% x 2% = 12%

potential GDP lost = 12% x $200 Billion  = 24 billion