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.

---

Definitions:

Confirmation Bias

The tendency to search for evidence that fits one’s beliefs while ignoring any evidence that does not fit those beliefs.

Convergent

Pertaining to an approach or process that involves bringing different elements together toward a common point or agreement.

Heuristic

A problem-solving approach that employs a practical method or various shortcuts to produce solutions that may not be perfect but are sufficient for the immediate goals.

Divergent

Thinking or a thought process that generates creative ideas by exploring many possible solutions, contrasting with convergent thinking.