If policy makers estimate the natural rate of unemployment incorrectly,
A)their policies will cause deflation in the long run
B)their policies will cause even more unemployment in the long run
C)the economy will stay below its potential GDP level in the long run
D)the economy will tend toward that level of unemployment the policy makers believe is correct
E)policies that appear to be successful in the short run will lead to further economic problems

Question

Quizplus · Accepted Answer

If policymakers misestimate the natural rate of unemployment, policies that seem effective in the short run may lead to issues like inflation or unemployment in the long run, as the economy adjusts to the incorrect assumptions.

If Policy Makers Estimate the Natural Rate of Unemployment Incorrectly