If the unemployment rate is above its natural rate,then ________.
A)output is below its potential level
B)there is excess tightness in the labor market
C)wages and prices will rise more rapidly and the AS curve will shift to the left
D)all of the above
E)none of the above

Question

Quizplus · Accepted Answer

When the unemployment rate is above its natural rate, it means that there are more people willing to work but unable to find employment. This indicates that there is a surplus of labor in the market, leading to a decrease in wages and a fall in output. Hence, output is below its potential level. Option B is incorrect as excess tightness in the labor market would indicate a shortage of labor, which is not the case when the unemployment rate is high. Option C is also incorrect as high unemployment rates put downward pressure on wages and prices, not upward pressure.

If the Unemployment Rate Is Above Its Natural Rate,then ________