When the unemployment rate is less than the natural unemployment rate,
A) the output gap is negative.
B) the output gap is positive.
C) the output gap equals zero.
D) None of the above is possible because it is impossible for the unemployment rate to be less than the natural rate.

Question

Quizplus · Accepted Answer

When the unemployment rate is less than the natural unemployment rate, it indicates that the economy is producing above its potential output, leading to a positive output gap.

When the Unemployment Rate Is Less Than the Natural Unemployment