Final answer:
High unemployment is associated with a negative output gap, meaning the actual output is below potential output, often due to inadequate aggregate demand.
Step-by-step explanation:
High unemployment occurs when the output gap is negative. This situation is characterized by the actual level of output in an economy being lower than its potential output. High unemployment can also be referred to as cyclical unemployment and typically arises when there's insufficient aggregate demand for the goods and services produced in the economy, leading to lower production and thus fewer workers being hired.
For instance, if the aggregate expenditure line intersects the 45-degree line at a point that represents a real GDP lower than the potential GDP, this scenario would be indicative of a recessionary gap. In such a case, firms are likely to hire fewer workers, resulting in higher unemployment rates. Adjustments to balance supply and demand, such as those caused by decreases in government spending or energy prices, can shift aggregate demand and aggregate supply curves, potentially reducing unemployment and affecting inflation.
In an economy, when there is excess demand, it means that the demand for goods and services exceeds the available supply. This leads to an increase in prices, and firms may not be able to meet the demand for labor. As a result, unemployment occurs.