According to the theory of hysteresis,a prolonged recession will:
A)decrease the natural rate of unemployment.
B)increase cyclical unemployment.
C)decrease the sacrifice ratio.
D)increase the natural rate of unemployment.

Question

Quizplus · Accepted Answer

According to the theory of hysteresis, a prolonged recession can lead to an increase in the natural rate of unemployment, as workers who remain unemployed for an extended period of time become less employable and lose their human capital. This can lead to a persistent increase in the structural or long-term unemployment rate, even after the economy recovers. Therefore, option D is the correct answer.

According to the Theory of Hysteresis,a Prolonged Recession Will