When real GDP
A) equals potential GDP, the natural rate of unemployment equals zero.
B) is above potential GDP, the unemployment rate is above the natural rate.
C) is above potential GDP, there is cyclical unemployment.
D) is below potential GDP, the unemployment rate is above the natural rate.
E) is below potential GDP, there is cyclical unemployment.

Question

Quizplus · Accepted Answer

When real GDP is below potential GDP, there is a gap between the actual and potential production levels, which leads to an increase in cyclical unemployment. This is because businesses are producing less than they are capable of, leading to a decrease in demand for labor and an increase in layoffs.

When Real GDP