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)lower is frictional unemployment.
B)greater is the employment rate.
C)more upward pressure there is on prices.
D)lower the deadweight loss of unemployment.
E)greater is the unemployment rate.

Question

Quizplus · Accepted Answer

When actual output is less than potential output, it indicates that the economy is not operating at full employment, leading to a higher unemployment rate. The larger the output gap, the greater the unemployment rate, as more resources, including labor, are underutilized.

Suppose Actual Output Is Less Than Potential Output