Empirical evidence for Canada suggests that if actual GDP grows by 2 percent a year and potential GDP grows by 3 percent a year:
A) the unemployment rate will be unchanged.
B) the unemployment rate will fall by 1 percentage point.
C) the unemployment rate will rise by ½ of one percentage point.
D) the economy will experience and inflationary gap.

Question

Quizplus · Accepted Answer

When actual GDP grows at a slower rate than potential GDP, it indicates that the economy is not growing as fast as it could, leading to an increase in unemployment. This is because there is underutilized capacity in the economy, including labor.

Empirical Evidence for Canada Suggests That If Actual GDP Grows