Final answer:
Under Okun's law, negative cyclical unemployment implies the economy is above potential GDP, resulting in a positive output gap.
Step-by-step explanation:
According to Okun's law, when cyclical unemployment is negative, this indicates that the economy is likely to be producing above its potential GDP. In this case, the output gap is positive, as the actual output exceeds the potential output, and the economy could be experiencing inflationary pressures.
Therefore, the correct answer to the question is that when cyclical unemployment is negative, the output gap is positive (B).
According to Okun's law, when cyclical unemployment is negative, it indicates that the economy is producing below potential GDP. In this case, the output gap is negative, meaning that the level of output is substantially to the left of potential GDP. This represents a recessionary gap, where there is a shortfall in economic output compared to what the economy is capable of producing.