When the level of output is below potential output, the unemployment rate is higher than the natural rate.

Question

Quizplus · Accepted Answer

The potential output is the level of output that can be produced with maximum utilization of available resources, including labor. The natural rate of unemployment is the rate of unemployment that still exists when the economy is producing at potential output. When the level of output is below potential output, there is a gap between what the economy can produce and what it actually produces, leading to higher unemployment than the natural rate.

When the Level of Output Is Below Potential Output, the Unemployment