According to current estimates of Okun's law, if the output gap is 3%, the natural rate of unemployment is 4%, and the expected rate of inflation is 5%, then the unemployment rate is _____%.
A) 3.5
B) 3
C) 2.5
D) 1.5

Question

Quizplus · Accepted Answer

Okun's law suggests that for every 1% increase in the output gap, the unemployment rate decreases by about 0.5%. With a 3% output gap, the unemployment rate would decrease by 1.5% from the natural rate of 4%, resulting in an unemployment rate of 2.5%.

According to Current Estimates of Okun's Law, If the Output