Suppose Policy Makers Underestimate the Natural Rate of Unemployment

question 4

Multiple Choice

Suppose policy makers underestimate the natural rate of unemployment. In such situations, policy makers will likely implement policies that result in:

• A) a steadily decreasing inflation rate.
• B) overly restrictive monetary and fiscal policy.
• C) more unemployment than necessary.
• D) a higher inflation rate than necessary.
• E) an unemployment rate that is "too high".