If the actual rate of unemployment is above the natural rate of unemployment, then potential GDP is
A) equal to the GDP gap.
B) equal to actual GDP.
C) less than actual GDP.
D) greater than actual GDP.

Question

Quizplus · Accepted Answer

When the actual rate of unemployment is above the natural rate, it indicates that not all resources (especially labor) are being utilized efficiently. This situation suggests that the economy could produce more if it were operating at full employment, meaning potential GDP (the maximum possible output with full employment of resources) is greater than actual GDP, which reflects current output levels.

If the Actual Rate of Unemployment Is Above the Natural