When an economy operates at its long-run potential output level,
A) aggregate demand will exceed aggregate supply in the goods and services market.
B) unemployment will decline to an abnormally low rate that cannot be sustained in the long run.
C) the actual rate of unemployment will exceed the natural rate of unemployment.
D) the natural and actual rates of unemployment will be equal.

Question

Quizplus · Accepted Answer

When an economy operates at its long-run potential output level, the natural rate of unemployment is achieved. This means that the labor market is in equilibrium, with no cyclical unemployment. Therefore, the actual rate of unemployment will match the natural rate, and there will be no excess demand or supply in the goods and services market.

When an Economy Operates at Its Long-Run Potential Output Level