If policy makers think the natural rate of unemployment is lower than it really is,then their policies designed to move the economy to the estimated natural rate,if continued over the long run,will
A)cause continuing inflation
B)shift the long-run aggregate supply curve to the right
C)shift the supply curve of labor to the right
D)reduce unemployment more than they had intended
E)keep the economy below its potential GDP level

Question

Quizplus · Accepted Answer

If policy makers believe that the natural rate of unemployment is lower than it really is, they may pursue expansionary policies such as reducing interest rates or increasing government spending to stimulate the economy and reduce unemployment. However, if the actual natural rate of unemployment is higher than estimated, these policies will lead to more demand for goods and services, which will push up prices and cause inflation. Thus, continuing these policies over the long run will cause continuing inflation.

If Policy Makers Think the Natural Rate of Unemployment Is