The actual rate of unemployment will be greater than the natural rate of unemployment when
A) the actual output is less than the economy's potential output.
B) the actual output is greater than the economy's potential output.
C) the actual output is equal to the economy's potential output.
D) the inflation rate has been relatively constant for several years.

Question

Quizplus · Accepted Answer

The natural rate of unemployment is the rate that exists when the economy is producing at its potential level of output and there is no cyclical unemployment. When the actual output is less than the economy's potential output, there is a recessionary gap, which means the economy is producing below its potential. This leads to an increase in cyclical unemployment, which causes the actual rate of unemployment to be greater than the natural rate of unemployment.

The Actual Rate of Unemployment Will Be Greater Than the Natural