Suppose the economy is at its potential output level.Which of the following best characterizes the unemployment rate?
A) It is at the natural rate.
B) It is greater than its natural rate.
C) It is less than its natural rate.
D) It would include only those people who do NOT have enough work.

Question

Suppose the economy is at its potential output level.Which of the following best characterizes the unemployment rate?  
A) It is at the natural rate. 
B) It is greater than its natural rate. 
C) It is less than its natural rate. 
D) It would include only those people who do NOT have enough work.

Quizplus · Accepted Answer

When the economy is at its potential output level, the unemployment rate is at its natural rate, which is the rate of unemployment that exists when the economy is at its potential output level. This rate includes only frictional and structural unemployment, which are considered to be inherent in any dynamic economy.

Suppose the Economy Is at Its Potential Output Level