The relationship between the output gap and the cyclical rate of unemployment is known as
A) the Phillips curve.
B) the LM curve.
C) Murphy's law.
D) Okun's law.

Question

Quizplus · Accepted Answer

The relationship between the output gap and the cyclical rate of unemployment is known as Okun's law. This law states that for every 1% increase in the output gap, the cyclical rate of unemployment will decrease by approximately 0.5%. Similarly, for every 1% decrease in the output gap, the cyclical rate of unemployment will increase by approximately 0.5%.

The Relationship Between the Output Gap and the Cyclical Rate