If the Fed were to allow unemployment to remain at a higher level than the NAIRU:
A) it could lead to deflation.
B) inflation would likely occur.
C) to the economy would not maintain full employment.
D) monetary policy would not be effective.

Question

Quizplus · Accepted Answer

Allowing unemployment to remain above the NAIRU (Non-Accelerating Inflation Rate of Unemployment) can lead to deflationary pressures as there is less demand for goods and services, which can cause prices to fall.

If the Fed Were to Allow Unemployment to Remain at a Higher