An important implication of the natural rate hypothesis is that regardless of concerns about __________,the government policy that results in __________ is generally the optimal long-run policy.
A)unemployment; low inflation
B)inflation; low unemployment
C)unemployment; low interest rates
D)inflation; low interest rates
E)inflation; a stable foreign exchange rate

Question

Quizplus · Accepted Answer

The natural rate hypothesis suggests that there is a long-run equilibrium level of unemployment that is independent of macroeconomic policies. Therefore, policies that attempt to keep unemployment below this natural rate will only result in inflationary pressures in the long run. Instead, policies that aim to keep inflation low, even if it means allowing unemployment to fluctuate around its natural rate, are generally considered optimal in the long run.

An Important Implication of the Natural Rate Hypothesis Is That