Question

1. the gdp gap and the consequences of unemployment

on the following graph, the black line shows potential real gdp and the blue line shows actual real gdp for a hypothetical country from 1990 to 2010.
use the green quadrilateral (triangle symbols) to shade the area between actual and potential real gdp that represents the positive gdp gap. then use the purple quadrilateral (diamond symbols) to shade the area between actual and potential real gdp that represents the negative gdp gap.
which of the following are true of an economy operating at full employment? check all that apply.
cyclical unemployment is negligible.
actual real gdp is less than potential real gdp.
the gdp gap is negligible.
the economy is operating at the natural rate of unemployment.

Explanation:

• Cyclical unemployment: Cyclical unemployment is related to the business - cycle. At full employment, the economy is at its potential output, so cyclical unemployment (which occurs due to downturns in the business cycle) is negligible.
• Actual vs potential GDP: At full employment, actual real GDP is equal to potential real GDP. So the statement “Actual real GDP is less than potential real GDP” is false.
• GDP gap: The GDP gap is the difference between actual and potential GDP. At full - employment, since actual = potential, the GDP gap is negligible.
• Natural rate of unemployment: Full - employment is defined as the situation where the economy is operating at the natural rate of unemployment. The natural rate of unemployment includes frictional and structural unemployment but not cyclical unemployment.

Answer:

Cyclical unemployment is negligible.
The GDP gap is negligible.
The economy is operating at the natural rate of unemployment.