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Potential Real GDP $600 billion Natural Rate of Unemployment 6% Actual Rate of Unemployment 12% Refer to the accompanying data, which is for a specific year In a hypothetical economy for which Okun's law is applicable The amount of output being forgone by the economy is Multiple Choice : a) $72 billion b) $36 billion c) $618 billion
Potential Real GDP $600 billion
Natural Rate of Unemployment 6%
Actual Rate of Unemployment 12%
Refer to the accompanying data, which is for a specific year In a hypothetical economy for which Okun's law is applicable The amount of output being forgone by the economy is
Multiple Choice :
a) $72 billion
b) $36 billion
c) $618 billion
Expert Solution
Computation of the amount of output being foregone by economy:-
(Potential GDP - Actual output) / Potential GDP = 2 * (Actual rate - Natural rate)
($600 - Actual output) / $600 = 2 * (12% - 6%)
$600 - Actual output = $600 * 2 * 6%
Actual output = $600 - $72
= $528 billion
Foregone amount = $600 - $528
= $72 billion
Hence, the correct option is a) $72 billion
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