Figure 1-1
-When the actual unemployment rate is likely to exceed the natural rate of unemployment, as in the time intervals between t1 and t2 and t3 and t4 in the figure above, we can expect that
A) inflation is speeding up and real GDP is likely to exceed natural GDP.
B) inflation is slowing down and real GDP is likely to fall below natural GDP.
C) inflation is speeding up and natural GDP is likely to exceed real GDP.
D) inflation is slowing down and real GDP is likely to exceed natural GDP.

Question

Figure 1-1 
-When the actual unemployment rate is likely to exceed the natural rate of unemployment, as in the time intervals between t1 and t2 and t3 and t4 in the figure above, we can expect that
A) inflation is speeding up and real GDP is likely to exceed natural GDP. 
B) inflation is slowing down and real GDP is likely to fall below natural GDP. 
C) inflation is speeding up and natural GDP is likely to exceed real GDP. 
D) inflation is slowing down and real GDP is likely to exceed natural GDP.

Quizplus · Accepted Answer

When the actual unemployment rate exceeds the natural rate, it indicates a recessionary gap where the economy is underperforming. This typically leads to slowing inflation and real GDP falling below potential GDP.

Figure 1-1 -When the Actual Unemployment Rate Is Likely to Exceed the to Exceed