If real GDP is greater than potential GDP, then:Group of answer choicesthe actual unemployment rate equals zerothe actual unemployment rate is greater than the natural unemployment ratethe output gap is negativethe actual unemployment rate is less than the natural unemployment rate
Question
If real GDP is greater than potential GDP, then:Group of answer choicesthe actual unemployment rate equals zerothe actual unemployment rate is greater than the natural unemployment ratethe output gap is negativethe actual unemployment rate is less than the natural unemployment rate
Solution
If real GDP is greater than potential GDP, then:
The output gap is negative.
Explanation:
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Real GDP is the value of all goods and services produced in an economy, adjusted for inflation. Potential GDP, on the other hand, is the maximum possible output an economy can produce when it is most efficient—that is, when unemployment is at the natural rate.
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If real GDP is greater than potential GDP, it means the economy is overproducing—producing more goods and services than it can sustain in the long run. This situation is often referred to as an "inflationary gap" or a "negative output gap."
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In this scenario, the actual unemployment rate is typically less than the natural unemployment rate because businesses are hiring more workers to produce the extra output. However, this situation is not sustainable in the long run because it can lead to inflation and other economic problems.
So, the correct answer is "the output gap is negative."
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