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6 August, 22:10

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

will be the effect on the GDP?

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Answers (1)
  1. 7 August, 00:26
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    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.
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