Discussion
The negative relationship between the gap between actual GDP and its trend value and the difference between actual unemployment rate and its equilibrium value is called
Answer: D
The negative relationship between the gap of actual GDP from its trend value and the difference between the actual unemployment rate and its equilibrium value is Okun's Law. It states that when output falls below its potential, the unemployment rate rises above its natural rate, and in the usual statement a one point rise in unemployment goes with a fall of about two points in GDP relative to potential. The Phillips curve relates inflation to unemployment, the aggregate supply curve relates the price level to output, and the natural rate hypothesis concerns the long run equilibrium unemployment, so none of them is the relation described.
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