If the unemployment rate is above its natural rate,then ________.
A)output is below its potential level
B)there is excess slack in the labor market which will dive down wages
C)inflation will decline until equilibrium output reaches its potential level
D)all of the above
E)none of the above

Question

Quizplus · Accepted Answer

When the unemployment rate is above its natural rate, it indicates that there is excess slack in the labor market. As a result, output will be below its potential level because there are not enough workers to produce goods and services. This excess slack will also drive down wages. Inflation will decline until equilibrium output reaches its potential level, which will require realigning the labor market with potential output by lowering wages. Thus, all of the above options are correct.

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