Under which of the following conditions will the actual rate of unemployment tend to rise above the natural rate of unemployment?
A) Prices are stable and have been for the last four years.
B) Inflation is 3 percent and was widely anticipated more than a year ago.
C) Expansionary monetary policies lead to an unexpected increase in inflation from 3 percent to 7 percent.
D) Restrictive monetary policies lead to an unexpected reduction in inflation from 6 percent to 2 percent.

Question

Quizplus · Accepted Answer

Restrictive monetary policies that lead to an unexpected reduction in inflation can cause unemployment to rise above the natural rate because they can reduce aggregate demand, leading to lower production and higher unemployment.

Under Which of the Following Conditions Will the Actual Rate