According to the natural rate hypothesis:
A) the government should intervene to keep the economy at its natural full employment rate.
B) the natural rate of unemployment is an objective rate that cannot be reached.
C) the economy moves toward the natural rate over the long run and government policies to go below it are ineffective.
D) the economy moves toward the natural rate over the long run only if government intervenes.

Question

Quizplus · Accepted Answer

The natural rate hypothesis suggests that the economy tends toward a natural rate of unemployment in the long run, and attempts by the government to reduce unemployment below this natural rate through expansionary policies are ultimately ineffective, leading to inflation without reducing unemployment in the long term.

According to the Natural Rate Hypothesis