The hypothesis that hysteresis may play an important role in macroeconomics implies, among other things, that:
A) the history of economic thought is important to macroeconomics.
B) workers get hysterical during long depressions.
C) hysteresis lowers the sacrifice ratio.
D) the natural rate of unemployment may increase if unemployment is high for a long period of time.

Question

Quizplus · Accepted Answer

The hypothesis of hysteresis suggests that the natural rate of unemployment may increase if unemployment remains high for a long period of time. This is because hysteresis implies that the negative effects of high unemployment can become permanent, leading to a persistent increase in the natural rate of unemployment. Choices A and B are not relevant to the hypothesis of hysteresis, and choice C is incorrect as hysteresis is associated with a higher sacrifice ratio rather than a lower one.

The Hypothesis That Hysteresis May Play an Important Role in Macroeconomics