The actual unemployment rate will fall below the natural unemployment rate when real GDP rises above potential GDP.

Question

Quizplus · Accepted Answer

The natural unemployment rate is the rate of unemployment that exists when the economy is in long-run equilibrium. When real GDP rises above potential GDP, there are more job opportunities and demand for labor increases, creating more employment opportunities which leads to a fall in unemployment rate below the natural rate.

The Actual Unemployment Rate Will Fall Below the Natural Unemployment