The table below shows real GDP, potential GDP and the unemployment rate for a hypothetical economy. TABLE 31- 1
-Refer to Table 31- 1. The variations in the unemployment rate between 2003 and 2011 are due to variations in

Question

The table below shows real GDP, potential GDP and the unemployment rate for a hypothetical economy.  TABLE 31- 1
-Refer to Table 31- 1. The variations in the unemployment rate between 2003 and 2011 are due to variations in

Quizplus · Accepted Answer

The unemployment rate varies with the output gap, which is the difference between real GDP and potential GDP. As the output gap narrows, the unemployment rate falls, and as the output gap widens, the unemployment rate rises. Therefore, the variations in the unemployment rate between 2003 and 2011 are due to variations in the output gap.

The Table Below Shows Real GDP, Potential GDP and the Unemployment