Answer:
The GDP gap is 9 % when there is 4.5 % unemployment.
Step-by-step explanation:
The statement shows a reverse relationship, where an increase in unemployment is following by decrease in potential GDP and can be translated into the following rate:
[tex]r = \frac{2\,\% \,GDP}{1\,\% unemp.}[/tex]
The GDP gap at a given increase in unemployment can be estimated by the following expression:
[tex]\frac{g}{u} = r[/tex]
[tex]g = r\cdot u[/tex]
Where:
[tex]r[/tex] - GDP gap-unemployment increase rate, dimensionless.
[tex]u[/tex] - Increase in unemployment rate, measured in percentage.
[tex]g[/tex] - GDP gap, measured in percentage.
If [tex]r = \frac{2\,\% \,GDP}{1\,\% unemp.}[/tex] and [tex]u = 4.5\,\%\,unemp.[/tex], the GDP gap is:
[tex]g = \left(\frac{2\,\%\,GDP}{1\,\%\,unemp.} \right)\cdot (4.5\,\%\,unemp.)[/tex]
[tex]g = 9\,\%\,GDP[/tex]
The GDP gap is 9 % when there is 4.5 % unemployment.
