When unexpected inflation is zero, the corresponding unemployment rate is not zero because: A) the output...

When unexpected inflation is zero, the corresponding unemployment rate is not zero because:

A) the output gap is negative.

B) the output gap is positive.

C) structural unemployment and frictional unemployment are not zero.

D) cyclical unemployment is high and positive.

If an economy has an output gap of 0%, this means the economy is:

A) suffering from hyperinflation.

B) at its highest sustainable rate of production.

C) experiencing cyclical unemployment.

D) unsustainable in the long run.

Solutions

Expert Solution

Answer 1

When unexpected inflation is zero, the corresponding unemployment rate is not zero because:

C) structural unemployment and frictional unemployment are not zero.

Reason: Economists estimate that about 4 %to 5% unemployment is Full Employment. This is called the "full employment rate of unemployment", or the "natural rate of unemployment" and it includes structural and frictional unemployment

Answer 2

If an economy has an output gap of 0%, this means the economy is:

B) at its highest sustainable rate of production.

Reason:

An output gap indicates the difference between the actual output of an economy and the maximum potential output of an economy expressed as a percentage of gross domestic product (GDP). A negative output gap suggests that actual economic output is below the economy's full capacity for output while a positive output suggests an economy that is outperforming expectations because its actual output is higher than the economy's recognized maximum capacity output.

Rahul Sunny answered 4 weeks ago

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