If the Reserve Bank tries to lower the unemployment rate so it is lower than the natural unemployment rate,in the long run the SRPC ________ and the LRPC ________.

Question

Quizplus · Accepted Answer

When the Reserve Bank tries to lower the unemployment rate below the natural rate, it creates an unsustainable situation that leads to higher inflation in the short run. This means the SRPC shifts upward. However, in the long run, the natural rate of unemployment remains unchanged, which means the LRPC does not shift. Therefore, the best choice is B - the SRPC shifts upward, and the LRPC does not change.

If the Reserve Bank Tries to Lower the Unemployment Rate