When the actual unemployment rate is equal to the natural rate of unemployment:
A) the unemployment rate is zero.
B) potential output exceeds actual output.
C) the output gap is zero.
D) actual output exceeds potential output.

Question

Quizplus · Accepted Answer

When the actual unemployment rate is equal to the natural rate of unemployment, the output gap is zero. This means that actual output equals potential output, which is the maximum sustainable level of output given the economy's resources and technology. The natural rate of unemployment is not zero, so A is incorrect. B is also incorrect because when the economy is operating at its potential, actual output equals potential output, meaning they are the same. D is incorrect because if actual output were exceeding potential output, it would suggest that the economy is in an inflationary gap, which would correspond to an unemployment rate below the natural rate.

When the Actual Unemployment Rate Is Equal to the Natural