According to the natural rate hypothesis, attempts to keep unemployment below the natural rate will lead to increasing inflation.

Question

Quizplus · Accepted Answer

The natural rate hypothesis suggests that there is a long-term equilibrium rate of unemployment that is determined by structural factors in the economy. If policymakers try to push unemployment below this natural rate through expansionary fiscal or monetary policy, it may lead to an increase in inflation as labor and product markets become tighter and prices rise.

According to the Natural Rate Hypothesis, Attempts to Keep Unemployment