B. Unemployment and the gap between actual and potential output
C. Interest rates and investment
D. Money supply and price level
Answer: Option B
Solution (By JKSSB Mock Tests)
Okun's Law describes the empirical relationship between unemployment and the output gap: a rise in unemployment is associated with a fall in actual output relative to potential output.
Explanation:
An increase in government spending raises aggregate demand, shifting the IS curve to the right, leading to higher income and interest rates in the short run.
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