ECONOMICS
AGGREGATE DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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real GDP will likely be low
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aggregate supply will be down
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aggregate demand will be low
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real GDP will likely be high
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Detailed explanation-1: -Finally, when the economy is above full employment, then the unemployment rate is less than the natural unemployment rate and real GDP is greater than potential. Operating above potential is only possible for a short while, since it is analogous to workers working overtime.
Detailed explanation-2: -Another version of Okun’s law focuses on a relationship between unemployment and GDP, whereby a percentage increase in unemployment causes a 2% fall in GDP.
Detailed explanation-3: -Proposed by economist Arthur Okun in 1962, it basically states that if GDP grows rapidly the unemployment rate declines, if growth is very low or neg-ative the unemployment rate rises, and if growth equals potential the unemploy-ment rate remains unchanged.
Detailed explanation-4: -In general accepted theory, when the growth rate of a country’s economy increases, it is expected that employment will increase and the unemployment rate will decrease.
Detailed explanation-5: -A high unemployment rate implies a high level of GDP. A discouraged worker is another name for the unemployed. Frictional and structural unemployment are part of the natural rate of unemployment. If the CPI for year 1 is 150 and the CPI for year 2 is 165, the inflation rate is 10%.