A country's current unemployment rate is 11 percent. economists estimate that its natural rate of unemployment is 6 percent. about how large is this economy's negative gdp gap?

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27-02-2018
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A country's current unemployment rate is 11 percent. economists estimate that its natural rate of unemployment is 6 percent. about how large is this economy's negative gdp gap?

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MrsTriplet MrsTriplet · Answer 1 · 2018-03-08T15:07:44+01:00

To find the GDP (gross domestic product) gap you will take the actual unemployment rate and subtract it from the natural rate. Next you will multiply that by -2 to find the economy's negative GDP gap.

Okun's law states there is a -2% GDP gap for every -1% that the natural rate exceeds the current rate.

Following this equation:
(actual unemployment rate - natural unemployment rate)(-2)=GDP gap
(11-6)(-2) = 10%