Exhibit 9-5
-The structural unemployment rate is 1.3 percent,the frictional unemployment rate is 2.1 percent,and the economy's current unemployment rate is 4.9 percent.The economy is in
A)a recessionary gap producing less than Natural Real GDP.
B)an inflationary gap producing more than Natural Real GDP.
C)long-run equilibrium.
D)an inflationary gap producing Natural Real GDP.
E)a recessionary gap producing more than Natural Real GDP.

Question

Exhibit 9-5 
-The structural unemployment rate is 1.3 percent,the frictional unemployment rate is 2.1 percent,and the economy's current unemployment rate is 4.9 percent.The economy is in
A)a recessionary gap producing less than Natural Real GDP. 
B)an inflationary gap producing more than Natural Real GDP. 
C)long-run equilibrium. 
D)an inflationary gap producing Natural Real GDP. 
E)a recessionary gap producing more than Natural Real GDP.

Quizplus · Accepted Answer

The natural rate of unemployment is the sum of structural and frictional unemployment, which is 3.4% (1.3% + 2.1%). Since the current unemployment rate is 4.9%, which is higher than the natural rate, the economy is producing less than its potential output, indicating a recessionary gap.

Exhibit 9-5 -The Structural Unemployment Rate Is 1.3 Percent,the Frictional Unemployment Rate