According to Milton Friedman, any divergence in unemployment from its natural rate is Jtemporary because
A) anticipated price changes affect nominal wages in the short run but workers will rectify this over time.
B) unanticipated price changes affect real wages in the short run but workers will rectify this over time.
C) anticipated price changes affect real wages in the short run but workers will rectify this over time.
D) unanticipated price changes create inflation which is addressed by policymakers over time.

Question

Quizplus · Accepted Answer

According to Milton Friedman, any divergence in unemployment from its natural rate is temporary because unanticipated price changes affect real wages in the short run but workers will rectify this over time. In other words, if there is a temporary increase in inflation, workers may accept lower wages in the short run, but over time they will adjust their expectations and demand higher wages, which will bring the unemployment rate back to its natural rate. This is known as the natural rate hypothesis. Thus, option B is the best choice.

According to Milton Friedman, Any Divergence in Unemployment from Its