Suppose an Economy's Natural Rate of Unemployment Is 5 Percent

question 3

Multiple Choice

Suppose an economy's natural rate of unemployment is 5 percent. If the unemployment rate is 7 percent, according to Okun's law, is ________ percent.

• A) 4
• B) -4
• C) 2
• D) -2
• E) Not enough information is given.

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Definitions:

Quantity Theory

The theory suggesting that the amount of money in circulation in an economy directly affects price levels and inflation.

Doubled

A term indicating that a quantity, value, or size has increased by 100 percent, resulting in its multiplication by two.

Stayed The Same

A condition where no change or variation has occurred over a specified period.

Quantity Theory

An economic theory that proposes a direct relationship between the quantity of money in an economy and the level of prices of goods and services.