According to Friedman and Phelps, no matter what a central bank does to the money supply, what will happen in the long run?
A) The economy will have a zero inflation rate.
B) The unemployment rate will tend toward the natural rate of unemployment.
C) The inflation rate will tend to the natural rate of inflation.
D) The economy will have a zero unemployment rate.

Question

Quizplus · Accepted Answer

Friedman and Phelps argued that in the long run, the economy's unemployment rate will tend toward the natural rate of unemployment, regardless of what a central bank does to the money supply. This concept is based on the idea that monetary policy can only affect nominal variables in the long run, not real variables like the unemployment rate, which adjusts to its natural level.

According to Friedman and Phelps, No Matter What a Central