Suppose policy makers underestimate the natural rate of unemployment.In situations like these,policy makers will likely implement policies that result in

Question

Quizplus · Accepted Answer

When policy makers underestimate the natural rate of unemployment, they are likely to implement expansionary monetary and fiscal policies to reduce unemployment. This can lead to demand-pull inflation, resulting in a higher inflation rate than necessary.

Suppose Policy Makers Underestimate the Natural Rate of Unemployment