If potential GDP is growing at 3% and actual GDP is growing at 2%, then the unemployment rate is below the natural rate.

Question

Quizplus · Accepted Answer

If actual GDP is growing at a rate slower than potential GDP, it indicates an economic downturn and employers will likely start laying off workers, leading to an increase in the unemployment rate. Therefore, if actual GDP is growing at a slower rate than potential GDP, the unemployment rate is likely above the natural rate, not below it.

If Potential GDP Is Growing at 3% and Actual GDP