Author Question: The natural unemployment rate is 4 percent and the actual unemployment rate is 7 percent. According ... (Read 117 times)

joesmith1212 · **on:** Jun 29, 2018

The natural unemployment rate is 4 percent and the actual unemployment rate is 7 percent. According to Okun's Law, how does of real GDP compare to potential GDP?

What will be an ideal response?

Question 2

Discretionary monetary policy has the drawback that it

A) must lead to very high inflation.
B) is currently illegal in the United States.
C) makes inflation expectations harder to manage.
D) cannot be implemented using changes in the federal funds rate.
E) None of the above answers is correct.

shaquita · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

The gap between the natural unemployment rate and actual unemployment rate is 7 percent minus 4 percent, which is 3 percentage points. According to Okun's Law, for each percentage point gap in the unemployment rate, there is a 2 percent gap between real GDP and potential GDP. So real GDP is 3 percent 2 = 6 percent below potential GDP.

Answer to Question 2

C