A country's current unemployment rate is 11 percent. economists estimate that its natural rate of unemployment is 6 percent. about how large is this economy's negative gdp gap?

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Business

Winston Gallagher

8 March, 13:36

A country's current unemployment rate is 11 percent. economists estimate that its natural rate of unemployment is 6 percent. about how large is this economy's negative gdp gap?

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Brynlee · Answer 1

To find the GDP (gross domestic product) gap you will take the actual unemployment rate and subtract it from the natural rate. Next you will multiply that by - 2 to find the economy's negative GDP gap.

Okun's law states there is a - 2% GDP gap for every - 1% that the natural rate exceeds the current rate.

Following this equation:

(actual unemployment rate - natural unemployment rate) (-2) = GDP gap

(11-6) (-2) = 10%