Suppose actual output is less than potential output.If the output gap measures the output loss due to the failure to achieve full employment,it can generally be concluded that the larger this output gap,the
A)greater is the employment rate.
B)greater is the unemployment rate.
C)lower is frictional unemployment.
D)lower the deadweight loss of unemployment.
E)more upward pressure there is on prices.

Question

Quizplus · Accepted Answer

If actual output is less than potential output, it indicates that there is slack in the economy and firms are producing less than their potential. This results in higher unemployment, as there are fewer job opportunities available. Therefore, the larger the output gap, the greater the unemployment rate is likely to be.

Suppose Actual Output Is Less Than Potential Output