Figure 1-2

-When the actual real GDP exceeds the natural real GDP as in Figure 1-2 above,we expect to find that unemployment is
A)high and inflation is high.
B)low and inflation is high.
C)low and inflation is low.
D)high and inflation is low.

Question

Figure 1-2
 
-When the actual real GDP exceeds the natural real GDP as in Figure 1-2 above,we expect to find that unemployment is
A)high and inflation is high. 
B)low and inflation is high. 
C)low and inflation is low. 
D)high and inflation is low.

Quizplus · Accepted Answer

When actual real GDP exceeds the natural real GDP, it means that the economy is operating above its potential level, which leads to low unemployment. However, this situation also creates upward pressure on prices, and hence high inflation. Therefore, the correct choice is option B, which states that unemployment is low and inflation is high.

Figure 1-2 -When the Actual Real GDP Exceeds the Natural Real GDP