According to Okun's law, if the unemployment rate goes from 4% to 6%, what

will be the effect on the GDP?

GDP will reduce by 4%

Explanation:

According to Okun, a 1% increase in unemployment will cause a 2% decrease in the level of GDP, and a 1% decrease in unemployment will lead to a 2% increase in the level of GDP.

What this means is that for every increase in unemployment, there is a corresponding double reduction effect on GDP.

In the scenario presented above, we can see that unemployment has gone from 4% to 6%, this means that there has been a 2% increase in unemployment. This 2% increase will therefore cause a 4% decrease in the GDP.