When an economy produces its potential output, _____ is zero.
A) frictional unemployment
B) cyclical unemployment
C) seasonal unemployment
D) structural unemployment
E) disguised unemployment

Question

Quizplus · Accepted Answer

Cyclical unemployment is the type of unemployment that occurs due to economic downturns or recessions, when the actual output is below potential output. When the economy produces its potential output, there is no cyclical unemployment as there is no shortfall in demand for labor. However, other types of unemployment such as frictional, seasonal, and structural may still exist. Disguised unemployment refers to a situation where people appear to be employed but are actually underemployed or not productive, and is not relevant in this context.

When an Economy Produces Its Potential Output, _____ Is Zero