Most economists today believe that effective monetary and fiscal policy can limit the fluctuations of the actual unemployment rate around the natural rate, but they are unable to keep unemployment permanently below the natural rate.

Question

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The natural rate of unemployment is the rate that is consistent with the economy being at full employment in the long run, and is determined by structural factors such as demographics, technology, and institutions. Monetary and fiscal policies can influence the short-term fluctuations of the actual unemployment rate around the natural rate, but they cannot permanently keep unemployment below the natural rate. This is because attempting to keep unemployment permanently below the natural rate would lead to inflation and other economic imbalances.

Most Economists Today Believe That Effective Monetary and Fiscal Policy