When actual unemployment is less than its natural rate:

Question

Quizplus · Accepted Answer

When actual unemployment is less than its natural rate, it means that the economy is producing beyond its long-run capabilities and is in an expansion. The natural rate of unemployment is the minimum level of unemployment that an economy can sustain without causing inflation. When actual unemployment is below this level, labor shortages may occur, leading to wage increases and ultimately contributing to inflation.

When Actual Unemployment Is Less Than Its Natural Rate