Which hypothesis is associated with a government policy that results in low inflation regardless of concerns about unemployment in the long run?
A) the Phillips curve hypothesis
B) the rational expectations hypothesis
C) the natural rate hypothesis
D) the expected price level hypothesis

Question

Which hypothesis is associated with a government policy that results in low inflation regardless of concerns about unemployment in the long run?  
A) the Phillips curve hypothesis 
B) the rational expectations hypothesis 
C) the natural rate hypothesis 
D) the expected price level hypothesis

Quizplus · Accepted Answer

The natural rate hypothesis asserts that in the long run, there is a natural rate of unemployment that is independent of macroeconomic policy. Therefore, government policy aimed at reducing unemployment below the natural rate will result in higher inflation in the long run. To avoid this, a government could pursue a policy that results in low inflation regardless of concerns about unemployment, which would align with the natural rate hypothesis.

Which Hypothesis Is Associated with a Government Policy That Results