The natural rate hypothesis argues that
A) in the long run, the unemployment rate returns to the natural rate, regardless of inflation.
B) unemployment is always below the natural rate.
C) unemployment is always above the natural rate.
D) unemployment is always equal to the natural rate.

Question

Quizplus · Accepted Answer

The natural rate hypothesis argues that in the long run, the unemployment rate will return to the natural rate, regardless of inflation. This natural rate is determined by structural factors such as demographics, technology, and institutions, and is not affected by monetary or fiscal policy. Therefore, in the long run, the unemployment rate will not be above or below the natural rate, but will be equal to it.

The Natural Rate Hypothesis Argues That