When the output gap is _____, reflecting an inflationary gap, the unemployment rate is _____ the natural rate of unemployment.
A) positive; above
B) negative; below
C) positive; below
D) negative; above

Question

Quizplus · Accepted Answer

An inflationary gap is when the actual output exceeds the potential output, which means the output gap is positive. This results in an increase in demand for labor, causing the unemployment rate to be below the natural rate of unemployment. Therefore, option C is the correct answer.

When the Output Gap Is _____, Reflecting an Inflationary Gap