According to the natural rate hypothesis,
A)government policy makers can influence the tradeoff between inflation and unemployment in the long run but not in the short run
B)government policy makers can target both stable interest rates and a stable money supply in the long run but not in the short run
C)government policy makers can target both stable interest rates and a stable money supply in the short run but not in the long run
D)the economy tends toward the natural rate of unemployment only when the government provides the appropriate demand stimulus
E)government policy makers can influence the tradeoff between inflation and unemployment in the short run but not in the long run

Question

Quizplus · Accepted Answer

The natural rate hypothesis suggests that in the long run, the economy will return to the natural rate of unemployment, and government policy cannot influence the tradeoff between inflation and unemployment. However, in the short run, policy can affect this tradeoff.

According to the Natural Rate Hypothesis