The natural rate hypothesis concludes that when the inflation rate unexpectedly increases, the unemployment rate ________.But when the higher inflation rate becomes the expected inflation rate, the unemployment rate then ________ until it reaches the ________ unemployment rate.
A) decreases; increases; maximum.
B) increases; decreases; minimum.
C) decreases; increases; natural
D) decreases; increases; maximum
E) increases; decreases; natural

Question

Quizplus · Accepted Answer

The natural rate hypothesis suggests that unexpected inflation can temporarily reduce unemployment below its natural rate, but as inflation expectations adjust, unemployment returns to its natural rate.

The Natural Rate Hypothesis Concludes That When the Inflation Rate