Answer to Question #58901 in Macroeconomics for Linda

Question

If the unemployment is above zero, the economy is not equal to its potential output. True or false? Explain

Answer 1

False. Because, economy might be equal to its potential output even if unemployment is above zero. When unemployment is equal to the natural rate output is equal to its potential level. The natural rate of unemployment is a combination of frictional and structural unemployment that persists in an efficient, expanding economy when labor and resource markets are in equilibrium.