Once people believe the RBA's commitment to keep unemployment at the natural rate, the RBA can increase unemployment above the natural rate:
A) in the short run, but not in the medium run.
B) in both the short run and the medium run.
C) in both the short run and the medium run, but only after changing peoples' expectations.
D) in the medium run and the long run.
E) in the medium run, but not the short run.

Question

Quizplus · Accepted Answer

In the short run, the Reserve Bank of Australia (RBA) can increase unemployment above the natural rate by tightening monetary policy, which would slow down the economy. However, in the medium run, as people adjust their expectations and the economy adapts, the unemployment rate would tend to move back towards the natural rate.

Once People Believe the RBA's Commitment to Keep Unemployment at the Natural