The natural rate hypothesis concludes that when the inflation rate _{--------------------} unexpectedly increases, the unemployment rate . But when the higher inflation rate becomes the expected inflation rate, the unemployment rate then _{--------------------}until it reaches the _{--------------------} unemployment rate. A)decreases; increases; natural B)decreases; increases; maximum C)decreases; decreases; natural D)increases; decreases; natural E)increases; decreases; minimum

Question

Quizplus · Accepted Answer

According to the natural rate hypothesis, an unexpected increase in inflation temporarily decreases unemployment. However, once the higher inflation becomes expected, unemployment returns to the natural rate.

The Natural Rate Hypothesis Concludes That When the Inflation Rate