In the long run,if the Fed lowers the inflation rate and holds it at that new rate,
A) a zero inflation rate will be reached
B) a recession will not occur
C) inflationary expectations will fall
D) the natural rate of unemployment will rise
E) structural unemployment will start to decrease

Question

Quizplus · Accepted Answer

If the Fed successfully lowers the inflation rate and holds it at a new lower rate, inflationary expectations will also fall. This is because people will become confident that the Fed will continue to keep inflation under control, leading to greater stability in the economy. This can also lead to lower interest rates and increased borrowing, which can spur economic growth. However, there is no guarantee that a zero inflation rate will be reached or that a recession will not occur. The natural rate of unemployment may initially rise as the economy adjusts to the new inflation rate, but it is not directly caused by the Fed's actions. Similarly, structural unemployment is not directly affected by changes in inflation rates.

In the Long Run,if the Fed Lowers the Inflation Rate