When the output of an economy exceeds the economy's full-employment capacity,
A) aggregate supply will increase until the economy can produce the output at the existing price level.
B) the actual rate of unemployment will be less than the natural rate.
C) wage rates and resource prices will tend to fall.
D) interest rates will decline and help direct the economy back to full employment.

Question

Quizplus · Accepted Answer

When the output exceeds full-employment capacity, the economy is operating above its potential, leading to lower unemployment than the natural rate.

When the Output of an Economy Exceeds the Economy's Full-Employment