If unemployment is below the natural rate of unemployment, then output is below potential output.

Question

Quizplus · Accepted Answer

If unemployment is below the natural rate of unemployment, it means that the labor market is tight and employers have a harder time finding workers to fill job openings, which puts upward pressure on wages and inflation. In this scenario, output can be at, above, or below potential output depending on other factors such as productivity, investment, and technology. So, the statement is false.

If Unemployment Is Below the Natural Rate of Unemployment, Then