For every 1% increase in unemployment, there is a 2%

decrease in potential GDP. This

creates a GDP gap. What is the GDP

gap when there is 4.5%

unemployment?

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:

The GDP gap at a given increase in unemployment can be estimated by the following expression:

Where:

- GDP gap-unemployment increase rate, dimensionless.

- Increase in unemployment rate, measured in percentage.

- GDP gap, measured in percentage.

If and , the GDP gap is:

The GDP gap is 9 % when there is 4.5 % unemployment.

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step-by-step explanation:

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step-by-step explanation: