The natural rate hypothesis states that _____
A) in the long run, the economy tends toward the natural rate of unemployment.
B) better discretionary policy can be expected to work.
C) the adjustment of the short-run Phillips curve is slow.
D) less macro policy can influence unemployment.
E) a passive policy can influence unemployment.

Question

Quizplus · Accepted Answer

The natural rate hypothesis states that in the long run, the economy tends toward the natural rate of unemployment. This means that in the absence of external shocks, unemployment will settle at the natural rate that is determined by structural factors such as demographics, technology, and minimum wage laws. Economic policies that attempt to keep unemployment below the natural rate in the long run will be ineffective and could lead to inflation.

The Natural Rate Hypothesis States That _____