When the economy is operating at a level of real GDP that is greater than its potential level, we know that

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When the economy operates above its potential GDP, it implies that demand for goods and services is higher than what the economy can produce at its natural rate. This situation often leads to a negative cyclical unemployment rate because the demand for labor exceeds the normal levels, pulling the actual unemployment rate below the natural rate of unemployment. Cyclical unemployment relates directly to the cyclical trends in growth and production within the economy.

When the Economy Is Operating at a Level of Real