The Natural Rate Theory Is Based on the Hypothesis That

question 89

Multiple Choice

The natural rate theory is based on the hypothesis that:

• A) unemployment will be maintained at the natural rate regardless of the actual inflation rate.
• B) unemployment will be maintained at the natural rate regardless of the expected inflation rate.
• C) when inflation expectations adjust, the unemployment rate will return to the natural rate.
• D) when the unemployment rate adjusts, inflation will return to its natural rate.

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Definitions:

Price Controls

Restrictions on pricing for goods and services in a market, enforced by the government.

Equilibrium Quantity

The quantity of goods or services that is supplied and demanded at the equilibrium price, where the market clears.

Tax Per Unit

A fixed amount of tax applied to a product or service, based on the quantity sold, rather than the value.

Tax Incidence

The study of who ultimately pays for and bears the cost of taxation, whether it be consumers, producers, or others.