What is the implication of Okun's Law regarding unemployment and GDP?

Okun's Law posits a relationship between unemployment and GDP, specifically that as unemployment rates decrease, real GDP tends to increase, and vice versa. The principle is generally interpreted as suggesting that there is a direct link between changes in unemployment and the output of an economy.

This relationship indicates that when more people are employed, there are more individuals contributing to production, which typically leads to an increase in real GDP. Conversely, if unemployment rises, it suggests that fewer people are working, which would result in a decrease in the total output or real GDP of the economy. This understanding aligns perfectly with the interpretation that an increase in unemployment corresponds with a reduction in real GDP, as indicated in the correct answer.

The other options do not accurately reflect the implications of Okun's Law. The notion that real GDP has no relation to unemployment ignores the significant empirical evidence supporting this correlation. Similarly, stating that a decrease in unemployment leads to a decrease in GDP contradicts the foundational premise of Okun's Law. Lastly, while there is a correlation, stating it as a "1:1 ratio" oversimplifies the relationship and does not properly capture the complexities involved, as the actual ratio might vary across different contexts and economic conditions.