The unemployment rate can remain below the natural rate,but only _____.
A)in the long run
B)with continuous deflation
C)with a continuously increasing inflation rate
D)with a series of adverse supply shocks
E)if the money supply is constant

Question

Quizplus · Accepted Answer

The unemployment rate can remain below the natural rate if there is a continuously increasing inflation rate. This is because inflation can temporarily lower unemployment by making labor cheaper in real terms, encouraging hiring. However, this is not sustainable in the long run without accelerating inflation due to the expectations-adjusted Phillips curve.

The Unemployment Rate Can Remain Below the Natural Rate,but Only