The natural rate theory is based on the hypothesis that:
A) unemployment will be maintained at the natural rate regardless of the actual inflation rate.
B) unemployment will be maintained at the natural rate regardless of the expected inflation rate.
C) when inflation expectations adjust, the unemployment rate will return to the natural rate.
D) when the unemployment rate adjusts, inflation will return to its natural rate.

Question

Quizplus · Accepted Answer

The natural rate theory suggests that the unemployment rate will return to its natural rate when inflation expectations adjust, as the economy self-corrects over time.

The Natural Rate Theory Is Based on the Hypothesis That