Question

When the unemployment rate is less than the natural unemployment rate

A) the output gap is positive.
B) is possible because it is impossible for the unemployment rate to be less than the natural rate.
C) the output gap equals zero. the output gap is negative.
D) None of the above.

Answer 1

C) the output gap equals zero. the output gap is negative.

Step-by-step explanation:

When the unemployment rate is less than the natural rate of unemployment (negative cyclical unemployment) real GDP is greater than potential GDP.