The observed unemployment rate would be less than the natural rate of unemployment if
A) the inflation rate is lower than expected.
B) the reservation wage is adjusted to account for higher inflation.
C) the inflation rate is expected.
D) reservation wages go up with the rate of inflation.
E) the inflation rate is higher than expected.

Question

Quizplus · Accepted Answer

The observed unemployment rate can be less than the natural rate of unemployment when the inflation rate is higher than expected. This situation can lead to lower real wages, encouraging employers to hire more workers and reducing unemployment temporarily below its natural rate.

The Observed Unemployment Rate Would Be Less Than the Natural