Question

According to Okun's law, if the unemployment rate goes from 2% to 5%, what will be the effect on the GDP?

Answer 1

Answer: decreases by 3%

Explanation:

Answer 2

According to this law, when unemployment goes up by 1%, GDP drops by 2%. In the question, unemployment rate goes from 2% to 5%, meaning unemployment goes up by 3%, so the GDP drops by 6%. Thus the effect is a drop in GDP by 6%.