The Great Moderation consensus regarding the use of monetary or fiscal policy to reduce unemployment in the long run is that:
A) unemployment can be constantly decreased as long as expectations of inflation are kept low.
B) the natural rate of unemployment limits what monetary and fiscal policy can accomplish.
C) the concept of the nonaccelerating inflation rate of unemployment, or NAIRU, was a mistake.
D) the only effective policy is to maintain a constant growth rate of the money supply.

Question

Quizplus · Accepted Answer

The Great Moderation consensus is that the natural rate of unemployment limits what monetary and fiscal policy can accomplish. This means that in the long run, unemployment can only be reduced to a certain point, which is determined by structural factors such as technology, demographics, and labor market institutions. Additionally, attempting to push unemployment below this level through expansionary policies could lead to higher inflation, which would ultimately be counterproductive.

The Great Moderation Consensus Regarding the Use of Monetary or Fiscal