When the unemployment rate ________ the natural unemployment rate, real GDP ________ potential GDP.

Question

Quizplus · Accepted Answer

When the unemployment rate is greater than the natural unemployment rate, it suggests that there is a cyclical unemployment caused by a deficiency in aggregate demand. This, in turn, indicates that real GDP is less than potential GDP as there are unutilized resources such as labor and capital that could be employed to produce more output. Option A is incorrect because when the unemployment rate equals the natural unemployment rate, it is indicative of a healthy labor market, and real GDP is at its potential. Option C is incorrect as it suggests that real GDP is less than potential GDP even when the unemployment rate equals the natural rate. Option D and E are incorrect as they present the opposite relationship between unemployment and GDP.

When the Unemployment Rate ________ the Natural Unemployment Rate, Real