When the unemployment rate is less than the natural unemployment rate
A) the output gap is positive.
B) the output gap equals zero.
C) the output gap is negative.
D) None of the above is possible because it is impossible for the unemployment rate to be less than the natural rate.

Question

Quizplus · Accepted Answer

When the unemployment rate is less than the natural unemployment rate, it typically indicates that the economy is operating above its potential output level, leading to a positive output gap. This situation reflects strong economic activity, possibly leading to inflationary pressures.

When the Unemployment Rate Is Less Than the Natural Unemployment