If the rate of unemployment is equal to the natural rate, the rate of inflation will
A) fall by 1 percent per year
B) rise by 1/2 percent per year.
C) fall by 1/2 percent per year.
D) not change.

Question

Quizplus · Accepted Answer

When the rate of unemployment is equal to the natural rate, it means that the economy is at its potential output level, and hence there is no pressure on prices to rise or fall. Therefore, the rate of inflation will not change.

If the Rate of Unemployment Is Equal to the Natural