Question

Refer to the accompanying data table which is for a specific year in a hypothetical economy for which Okun's law is applicable. If the data shows that the unemployment rate increased by 2

1) Unemployment and GDP growth are positively correlated
2) Unemployment and GDP growth are negatively correlated
3) Unemployment and GDP growth are not correlated
4) Cannot be determined based on the given information

Answer 1

Unemployment and GDP growth are negatively correlated.

Step-by-step explanation:

According to Okun's law, which is applicable to the hypothetical economy in question, unemployment and GDP growth are negatively correlated. This means that when the unemployment rate increases, GDP growth decreases, and vice versa. In other words, when there is a higher level of unemployment, the economy tends to be experiencing a slowdown or contraction.