In the long run people come to expect whatever inflation rate the Fed chooses to produce, so unemployment returns to its natural rate.

Question

Quizplus · Accepted Answer

This statement reflects the concept of the natural rate of unemployment and the expectations-augmented Phillips Curve. Over time, people adjust their expectations to the inflation rate set by the Federal Reserve, and as a result, unemployment stabilizes back to its natural rate, which is the rate of unemployment consistent with a stable inflation rate when the economy is at full employment.

In the Long Run People Come to Expect Whatever Inflation