Suppose a policy increases the natural rate of unemployment. What is the effect of such a policy change?
A) an upward movement along the long-run Phillips curve
B) a downward movement along the long-run Phillips curve
C) a rightward shift of the long-run Phillips curve
D) a leftward shift of the long-run Phillips curve

Question

Quizplus · Accepted Answer

An increase in the natural rate of unemployment represents a decrease in the level of potential output in the long run. Thus, there is a rightward shift of the long-run Phillips curve, indicating that higher levels of inflation are associated with higher levels of unemployment at every level of potential output.

Suppose a Policy Increases the Natural Rate of Unemployment