If policy makers think the natural rate of unemployment is lower than it really is,then their policies designed to move the economy to the estimated natural rate,if continued over the long run,will:
A)cause continuing inflation.
B)shift the long-run aggregate supply curve to the right.
C)shift the supply curve of labor to the right.
D)lead to a lower price level.
E)keep the economy below its potential GDP level.

Question

Quizplus · Accepted Answer

If policy makers believe the natural rate of unemployment is lower than it actually is, they may implement expansionary policies in order to lower unemployment. However, if the actual natural rate is higher, these policies will push the unemployment rate below the natural rate, leading to an overheating economy and continuing inflation.

If Policy Makers Think the Natural Rate of Unemployment Is