When unemployment is below the natural rate, the economy probably has an inflationary gap.

Question

Quizplus · Accepted Answer

This statement is true based on the Phillips curve, which shows the inverse relationship between unemployment and inflation. When unemployment is below the natural rate, it implies that the labor market is tight, and workers have more bargaining power to demand higher wages. This could lead to increased production costs, which in turn leads to higher prices and inflationary pressures in the economy.

When Unemployment Is Below the Natural Rate, the Economy Probably