Once people believe the Fed's commitment to keep unemployment at the natural rate,the Fed can reduce unemployment below the natural rate
A)in both the short run and the long run.
B)in both the short run and the long run, but only after changing peoples' expectations.
C)in the long run, but not the short run.
D)in the short run, but not in the long run.
E) none of the above

Question

Quizplus · Accepted Answer

The Fed can reduce unemployment below the natural rate in the short run by increasing aggregate demand, but in the long run, expectations adjust, and the natural rate of unemployment prevails, making such a reduction unsustainable.

Once People Believe the Fed's Commitment to Keep Unemployment at the Natural