Suppose policymakers want to keep the unemployment rate below its natural rate by increasing demand. A consequence of this policy would be

Question

Quizplus · Accepted Answer

When policymakers try to keep the unemployment rate below its natural rate by increasing demand, it is likely to result in accelerating inflation. This is because as demand increases, firms respond by raising prices, which in turn leads to an increase in inflation. Therefore, policymakers need to be cautious about using this approach to reduce unemployment since it could lead to other macroeconomic problems.

Suppose Policymakers Want to Keep the Unemployment Rate Below Its