Economists today generally believe that monetary policy can stabilize the economy but not reduce unemployment below its natural rate.

Question

Quizplus · Accepted Answer

Monetary policy can affect macroeconomic variables such as inflation, output, and interest rates, but it cannot reduce unemployment below its natural rate, which is determined by structural, demographic, and institutional factors. This is because attempts to push unemployment below its natural rate will lead to higher inflation in the long run.

Economists Today Generally Believe That Monetary Policy Can Stabilize the Economy