When aggregate output is less than potential output, the unemployment rate the NAIRU.

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NAIRU stands for Non-Accelerating Inflation Rate of Unemployment, which represents the rate of unemployment at which there is no upward or downward pressure on inflation. When aggregate output is less than potential output, it implies a negative output gap, which increases the unemployment rate above the NAIRU. This is because firms are producing less output than they are capable of and may lay off workers to cut costs, leading to a higher unemployment rate.

When Aggregate Output Is Less Than Potential Output, the Unemployment