When there is an inflationary gap:
A)Unemployment exceeds the natural rate of unemployment.
B)Unemployment equals the natural rate of unemployment.
C)Unemployment is less than the natural rate of unemployment.
D)Any of the above is possible.

Question

When there is an inflationary gap:
A)​Unemployment exceeds the natural rate of unemployment.
B)​Unemployment equals the natural rate of unemployment.
C)​Unemployment is less than the natural rate of unemployment.
D)​Any of the above is possible.

Quizplus · Accepted Answer

An inflationary gap occurs when aggregate output exceeds potential output, which puts pressure on prices to rise. In this situation, there is a relative shortage of labor and resources, which leads to a situation of low unemployment (less than the natural rate of unemployment).

When There Is an Inflationary Gap