When the economy is operating at an output rate below its full-employment level, the
A) actual level of unemployment will exceed the natural rate of unemployment.
B) current rate of output will tend to persist into the future.
C) strong demand for resources will cause resource prices to rise.
D) actual unemployment rate will be less than the natural rate of unemployment.

Question

Quizplus · Accepted Answer

When the economy is operating below its full-employment level, there is a deficiency in the demand for goods and services. This leads to a reduction in production, and firms will reduce their demand for labor. As a result, the actual level of unemployment will exceed the natural rate of unemployment. The natural rate of unemployment is the rate of unemployment that exists when the economy is operating at its full-employment level, and there is no cyclical unemployment.

When the Economy Is Operating at an Output Rate Below