An unemployment rate that is above the natural rate indicates ________ unemployment,and we say that the economy is producing at ________ output level.
A) cyclical; more than the full-employment
B) cyclical; the full-employment
C) cyclical; less than the full-employment
D) frictional; more than the full-employment
E) frictional; the full-employment

Question

Quizplus · Accepted Answer

An unemployment rate that is above the natural rate indicates cyclical unemployment, as it is caused by a lack of demand in the economy. When there is less demand, firms produce less and need fewer workers, which leads to unemployment. This means that the economy is producing at less than the full-employment output level, as there are resources that are not being utilized due to the lack of demand.

An Unemployment Rate That Is Above the Natural Rate Indicates