Recall the Application about how to estimate the shifts in the natural rate of unemployment to answer the following question(s).
-Recall the Application. If the natural rate of unemployment has been underestimated and is actually higher than is commonly perceived, reducing the unemployment rate to the perceived natural rate will tend to
A) increase anticipated inflation.
B) decrease anticipated inflation
C) increase unanticipated inflation.
D) decrease unanticipated inflation.

Question

Quizplus · Accepted Answer

If the natural rate of unemployment is underestimated, efforts to reduce unemployment to this perceived natural rate will likely result in an economy operating beyond its sustainable capacity, leading to higher demand for goods and services than can be met, which in turn increases prices faster than anticipated, thus increasing unanticipated inflation.

Recall the Application About How to Estimate the Shifts in the Natural