According to the AS-AD model, when real GDP exceeds potential GDP, the unemployment rate is definitely
A) less than the natural unemployment rate.
B) equal to the natural unemployment rate.
C) greater than the natural unemployment rate.
D) falling.
E) rising.

Question

Quizplus · Accepted Answer

When real GDP exceeds potential GDP, the economy is producing above its long-term sustainable level, indicating that resources, including labor, are being utilized more than normal. This typically results in an unemployment rate that is less than the natural unemployment rate.

According to the AS-AD Model, When Real GDP Exceeds Potential