Use the figure below to answer the following question(s). Figure 10-16 -Suppose an economy is currently operating at output Y₁ associated with AD₁ and SRAS₁, shown in Figure 10-16. Initially, the output of this economy is A)above its potential, and the rate of unemployment is greater than the natural rate. B)below its potential, and the rate of unemployment is greater than the natural rate. C)above its potential, and the rate of unemployment is less than the natural rate. D)below its potential, and the rate of unemployment is less than the natural rate.

Question

Quizplus · Accepted Answer

When the economy is operating below its potential output, it indicates that there is a recessionary gap, leading to higher unemployment than the natural rate.

Use the Figure Below to Answer the Following Question(s)