In Macroland, potential output equals exist100 trillion and the natural rate of unemployment is 4 percent.

(a) If the actual unemployment rate is 5 percent, then the output gap equals:

(b) If the actual unemployment rate is 3 percent, then the output gap equals

GDP gap = - 2 %

GDP gap = 2%

Explanation:

given data

potential output = 100 trillion

natural rate unemployment = 4 percent

solution

we know as per the Okun's law

the GDP gap will be = - 2% (for every 1%)

the actual unemployment rate exceeds its natural rate

so here if actual unemployment rate = 5 %

GDP gap will be

GDP = (5% - 4%) * - 2

GDP gap = - 2 %

and

when actual unemployment rate = 3%

so GDP will be

GDP gap = (3% - 4%) * - 2

GDP gap = 2%