Suppose the economy is producing below its potential output level.Which of the following characterizes the unemployment situation?

Question

Quizplus · Accepted Answer

When the economy is producing below its potential output level, there will be some cyclical unemployment as businesses experience a decrease in demand for goods and services. This leads to a decline in production and a subsequent increase in unemployment. The actual unemployment rate would exceed the natural rate due to the presence of cyclical unemployment. Structural unemployment could still exist even if the economy is producing below its full capacity.

Suppose the Economy Is Producing Below Its Potential Output Level