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

Multiple select question.

Neither a negative nor a positive GDP gap is possible.

A natural rate of unemployment exists.

A positive GDP gap is possible.

A negative GDP gap is possible.

1 answer

In the context of short-run economic equilibrium, the following statements can be evaluated:

  1. Neither a negative nor a positive GDP gap is possible. - This is not true. At short-run equilibrium, it is possible to have either a positive or negative GDP gap.

  2. A natural rate of unemployment exists. - This statement is somewhat misleading in the context of short-run equilibrium specifically; the natural rate of unemployment is more applicable to the long-run perspective. In the short run, the unemployment rate could be above or below the natural rate.

  3. A positive GDP gap is possible. - This statement is true. A positive GDP gap occurs when actual GDP is greater than potential GDP, which can happen in the short run.

  4. A negative GDP gap is possible. - This statement is also true. A negative GDP gap happens when actual GDP is less than potential GDP, which is also possible in the short run.

So, the true statements regarding short-run equilibrium would be:

  • A positive GDP gap is possible.
  • A negative GDP gap is possible.