If the unemployment rate is below its natural rate,then ________.
A)output is below its potential level
B)there is excess tightness in the labor market
C)the AS curve will shift to the right
D)all of the above
E)none of the above

Question

Quizplus · Accepted Answer

The natural rate of unemployment is the rate of unemployment that occurs when the labor market is in equilibrium, with no cyclical unemployment. If the actual rate of unemployment is below the natural rate, it means there is excess tightness in the labor market, with too few workers for too many job openings. This implies that employers may have to offer higher wages or other incentives to attract workers, which can lead to higher costs and lower profits, and may also create upward pressure on prices and inflation. However, it does not necessarily mean that output is below its potential level or that the AS curve will shift to the right. These would depend on other factors, such as the degree of capacity utilization, investment, productivity growth, and government policies.

If the Unemployment Rate Is Below Its Natural Rate,then ________