Which of the following is NOT true about unemployment and GDP? At the natural ra
ID: 1154748 • Letter: W
Question
Which of the following is NOT true about unemployment and GDP?
At the natural rate of unemployment, the economy is considered to be producing its potential output.
The GDP gap is the difference between Actual GDP and Potential GDP.
Potential GDP is determined by assuming that the only the natural rate of unemployment prevails. At the Potential GDP, there is zero Cyclical Unemployment.
The Natural Rate of Unemployment results when the Cyclical Rate of Unemployment is less than the GDP gap.
a.At the natural rate of unemployment, the economy is considered to be producing its potential output.
b.The GDP gap is the difference between Actual GDP and Potential GDP.
c.Potential GDP is determined by assuming that the only the natural rate of unemployment prevails. At the Potential GDP, there is zero Cyclical Unemployment.
d.The Natural Rate of Unemployment results when the Cyclical Rate of Unemployment is less than the GDP gap.
Explanation / Answer
Potential GDP or potential output is when the economy is at full rate of employment and there's no unemployment at all. In this regard,
Option (a) is the answer
where all the other statements are as per definitions
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