\begin{tabular}{l} Question 20 \\ If the coonomy were at its potential output level, which of the following is not true? \\ (1) There would be some cyclical unemployment. \\ (2) The actual unemployment rate would equal the natural rate. \\ (3) There would be some structural unemployment. \\ (4) There would be some frictional unemployment. \\ \hline\end{tabular}

When an economy is operating at its **potential output** (also known as **full employment**), it is producing at the maximum sustainable level without causing inflation to rise. At this level: 1. **Cyclical Unemployment:** This type of unemployment arises from economic downturns (i.e., when the economy is below its potential output). At potential output, cyclical unemployment **does not exist** because the economy is not experiencing a recession or boom. 2. **Natural Unemployment Rate:** This includes **structural** and **frictional** unemployment but excludes cyclical unemployment. At potential output, the actual unemployment rate equals the natural rate because only structural and frictional factors are at play. 3. **Structural Unemployment:** This occurs when there's a mismatch between the skills of the labor force and the needs of employers. Even at full employment, some structural unemployment is inevitable due to changing industries and technologies. 4. **Frictional Unemployment:** This type involves short-term unemployment as workers transition between jobs. It's a normal part of a healthy economy and exists even when the economy is at potential output. **Conclusion:** **Statement (1) is not true** when the economy is at its potential output level because there would be **no cyclical unemployment** under these conditions. **Answer:** **Statement (1) is not true.** When the economy is at its potential output, there is no cyclical unemployment.