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Which of the following statements is true when the economy is at equilibrium in the short run?

Multiple select question.

A natural rate of unemployment exists.

A negative GDP gap is possible.

Neither a negative nor a positive GDP gap is possible.

A positive GDP gap is possible.

1 answer

When the economy is at equilibrium in the short run, the following statements can be considered:

  1. A natural rate of unemployment exists. - This statement is true. The natural rate of unemployment represents the long-term unemployment rate when the economy is at full capacity, which can be consistent with short-run equilibrium.

  2. A negative GDP gap is possible. - This statement is also true. Although the economy can be at short-run equilibrium, it may still be producing below its potential output, leading to a negative GDP gap.

  3. Neither a negative nor a positive GDP gap is possible. - This statement is false. As mentioned, at short-run equilibrium, a negative GDP gap is possible.

  4. A positive GDP gap is possible. - This statement can also be true in certain circumstances, particularly if the economy is overheating or producing above its potential output, leading to a positive GDP gap.

In summary, the true statements about short-run equilibrium in the economy are that:

  • A natural rate of unemployment exists.
  • A negative GDP gap is possible.
  • A positive GDP gap is also possible, depending on the specific conditions of the economy.

So the true answers are:

  • A natural rate of unemployment exists.
  • A negative GDP gap is possible.
  • A positive GDP gap is possible.