The actual rate of unemployment could fall below the natural rate of unemployment during which of the following?
I. An economic boom.
II. An economic expansion, where the economy is trying to extricate itself from a recession.
III. A war.
IV. Never. The natural rate of unemployment is a lower limit on unemployment rate in a given economy, depending on its structural features.
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A. B. C. D.B
If the economy is in a recession, that means the unemployment rate is quite high, far above the natural rate. Hence, II is incorrect. IV is also incorrect since the natural rate of unemployment prevails in a healthy economy operating at maximum sustainable efficiency. However, in times of high demand like economic booms or war, it is possible that the unemployment rate temporarily dips below the natural rate, causing the output to rise above the sustainable GDP.