Suppose Venezuela experiences economic expansion in 2013, yet its unemployment rate is 15 percent, and economists have estimated that the natural rate of unemployment in Venezuela is also approximately 15 percent.. If this is the case, then for the Venezuelan economy in 2013,
A) actual output is significantly above potential output.
B) potential output is significantly above actual output.
C) actual output is roughly equal to potential output.
D) None of the above are correct because there is no relationship between actual output and potential output in the short run.

Question

Quizplus · Accepted Answer

If the natural rate of unemployment in Venezuela is approximately 15 percent, then the economy is likely operating at its potential output level, given that there are no significant supply-side constraints on the economy. Therefore, if the economy experiences an economic expansion, actual output will increase but would likely still be roughly equal to potential output since the unemployment rate remains at 15 percent.

Suppose Venezuela Experiences Economic Expansion in 2013, Yet Its Unemployment