During a recession, how does output relate to its potential and unemployment relate to the natural rate?
A) Output is above potential, and unemployment is below the natural rate.
B) Output is above potential, and unemployment is above the natural rate.
C) Output is below potential, and unemployment is below the natural rate.
D) Output is below potential, and unemployment is above the natural rate.

Question

During a recession, how does output relate to its potential and unemployment relate to the natural rate?  
A) Output is above potential, and unemployment is below the natural rate. 
B) Output is above potential, and unemployment is above the natural rate. 
C) Output is below potential, and unemployment is below the natural rate. 
D) Output is below potential, and unemployment is above the natural rate.

Quizplus · Accepted Answer

During a recession, output falls below its potential due to reduced demand for goods and services, resulting in a decrease in production and employment. This leads to an increase in unemployment above the natural rate, as some workers are unable to find jobs due to the weakened economy. Therefore, the correct answer is D, which states that output is below potential, and unemployment is above the natural rate.

During a Recession, How Does Output Relate to Its Potential