Picture an economy that is in general equilibrium.What would happen if the natural rate of unemployment were to experience an increase?
A)according to the Phillips curve,the ensuing negative unemployment gap would exert inflationary pressures
B)according to Okun's Law,the ensuing negative unemployment gap would be consistent with a positive output gap
C)according to the AD-AS framework,the LRAS curve would shift to the left and the ensuing positive output gap would be closed by subsequent leftward shifts in the AS curve to higher equilibrium levels of inflation
D)all of the above
E)none of the above

Question

Quizplus · Accepted Answer

An increase in the natural rate of unemployment would shift the LRAS curve to the left, leading to a positive output gap. According to Okun's Law, this would be consistent with a negative unemployment gap. According to the Phillips curve, this negative unemployment gap would exert inflationary pressures.

Picture an Economy That Is in General Equilibrium