When the unemployment rate is less than the natural unemployment rate, real GDP is _______ than potential GDP and the output gap is _______.
A)greater; positive
B)greater; equal to zero
C)smaller; positive
D)smaller; negative
E)greater; negative

Question

Quizplus · Accepted Answer

When the unemployment rate is less than the natural unemployment rate, it implies that the economy is operating above its potential level. This implies that real GDP is greater than potential GDP, and the output gap is positive. Therefore, choice A, greater and positive, is the best answer.

When the Unemployment Rate Is Less Than the Natural Unemployment