Once decision makers fully adjust to an increase in the general price level,
A) the actual rate of unemployment will exceed the natural rate of unemployment.
B) the actual rate of unemployment will be less than the natural rate of unemployment.
C) the rate of output will exceed the economy's long-run capacity.
D) output will return to the full-employment level.

Question

Quizplus · Accepted Answer

Once decision makers fully adjust to an increase in the general price level, output will return to the full-employment level. This is because, in the long run, prices and wages become fully adjusted, and the economy returns to its potential output level. As a result, there is no sustained impact on the natural rate of unemployment or the economy's long-run capacity.

Once Decision Makers Fully Adjust to an Increase in the General