Government can push the unemployment rate below the natural rate only by
A) instituting supply-side economic policies.
B) producing a higher rate of inﬂation than people expect.
C) balancing the federal budget.
D) achieving zero inﬂation.

Question

Quizplus · Accepted Answer

The natural rate of unemployment is the rate at which the economy is operating at full employment, with all available resources utilized. Pushing the unemployment rate below the natural rate can be done by producing a higher rate of inflation than people expect. This can encourage firms to increase hiring and reduce unemployment. However, this solution comes with the potential cost of increased inflation which can cause other economic problems. The other options listed may have other benefits, but will not directly impact bringing the unemployment rate below the natural rate.

Government Can Push the Unemployment Rate Below the Natural Rate