If current unemployment is close to the natural rate of unemployment, the level of real GDP is likely to be close to the level of potential output.

Question

Quizplus · Accepted Answer

The natural rate of unemployment is the rate at which there is no cyclical unemployment and the economy is operating at sustainable levels of employment. If current unemployment is close to the natural rate, it suggests that there is no significant cyclical unemployment in the economy. In turn, this would suggest that the level of real GDP is close to potential output, as there is no slack or excess capacity in the economy to produce output beyond this level.

If Current Unemployment Is Close to the Natural Rate of Unemployment