If the real GDP in a country is lower than fullemployment ou

If the real GDP in a country is lower than full-employment output, which of the following are true? i) The unemployment rate is lower than the natural rate. i) The unemployment rate is higher than the natural rate. ii) The cyclical unemployment rate is negative. iv) The cyclical unemployment rate is positive. Choose one: O A. i and ii O B. ii and iv O C. i and iv

Solution

Ans: B ) ii and iv

Explanation :

If the real GDP in a country is lower than full-employment output , then there is less utilisation or under utilisation of resources . It leads less employment oppertunities in the economy. So the unemployment rate is higher than the natural rate of unemployment.Cyclical unemployment occurs in the economy due to down turn in business cycle or trade cycle.When the real GDP in a country is lower than full-employment output, then there will be less employment oppertunities in the economy. As a result cyclical unemployment rate will become positive.