According to the AS-AD model, when real GDP is less than 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 is less than potential GDP, there is a negative output gap, meaning that there is a surplus of labor and resources in the economy that are not being fully utilized. This typically leads to higher unemployment rates, which are above the natural rate of unemployment. Therefore, the correct answer is (C) greater than the natural unemployment rate.

According to the AS-AD Model, When Real GDP Is Less