If the Fed lowers the inflation rate and initially expected inflation does not change, in the short run the unemployment rate_{--------------------} and in the long run the unemployment rate_{--------------------} the natural unemployment rate. A)falls; is equal to B)does not change; is greater than C)does not change; is equal to D)rises; is greater than E)rises; is equal to

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Quizplus · Accepted Answer

In the short run, lowering inflation can lead to higher unemployment due to reduced demand. In the long run, the unemployment rate returns to the natural rate as expectations adjust.

If the Fed Lowers the Inflation Rate and Initially Expected