The natural rate hypothesis:
A) is now generally discredited.
B) implies sharp limits on what macroeconomic policy can achieve.
C) implies there is a long-run trade-off between inflation and unemployment.
D) implies that there is no liquidity trap.

Question

Quizplus · Accepted Answer

The natural rate hypothesis implies that there are limits on what macroeconomic policy can achieve, as inflation and unemployment will eventually return to their natural rates regardless of policy actions. However, it does not discount the possibility of short-run trade-offs between inflation and unemployment. The natural rate hypothesis is still a widely accepted concept in macroeconomics.

The Natural Rate Hypothesis