Using Okun's Rule of Thumb, If Trend Growth Is 3

question 60

Multiple Choice

Using Okun's rule of thumb, if trend growth is 3 percent and the unemployment rate falls by 0.5 percent, output would be expected to have:

• A)fallen by 2 percentage point.
• B)risen by 2 percentage point.
• C)fallen by 4 percentage points.
• D)risen by 4 percentage points.

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Definitions:

Aggregate Demand

The total demand for all goods and services in an economy at various price levels, over a specific time period.

Expansionary Gap

A situation where the actual output in an economy is higher than the potential output, often leading to inflation.

Potential GDP

The maximum output an economy can achieve when all resources are used efficiently and effectively, without causing inflation.

Cost-Push Inflation

Inflation that occurs when the prices of inputs such as labor and raw materials go up, causing a reduction in the supply of these products.