The lack of a long-run tradeoff between the unemployment rate and the inflation rate means that
A) only fiscal policy is effective to lower the natural unemployment rate.
B) an increase in the inflation rate would not bring a reduction in the natural unemployment rate.
C) only a decrease in the inflation rate would bring a reduction in the natural unemployment rate.
D) only monetary policy is effective to lower the natural unemployment rate.
E) the natural unemployment rate cannot change.

Question

Quizplus · Accepted Answer

The lack of a long-run tradeoff between the unemployment rate and the inflation rate means that an increase in the inflation rate would not necessarily bring a reduction in the natural unemployment rate. In fact, trying to lower the unemployment rate through inflationary policies could potentially lead to higher, rather than lower, unemployment rates in the long run.

The Lack of a Long-Run Tradeoff Between the Unemployment Rate