Unemployment cannot be reduced below its natural rate
A) without increasing interest rates.
B) without accelerating inflation.
C) without increasing government purchases.
D) without increasing the exchange rate.

Question

Quizplus · Accepted Answer

The concept of the natural rate of unemployment is associated with the idea that there is a level of unemployment that cannot be reduced without leading to accelerating inflation. This is based on the Phillips curve, which suggests a trade-off between inflation and unemployment in the short run. Reducing unemployment below its natural rate tends to put upward pressure on wages and prices, leading to higher inflation.

Unemployment Cannot Be Reduced Below Its Natural Rate