In the diagram,
A) any rate of inﬂation is consistent with the natural rate of unemployment in the long run.
B) inﬂation can occur, but disinﬂation cannot occur.
C) unemployment rates exceeding the natural rate are permanent.
D) unemployment rates less than the natural rate are permanent.

Question

In the diagram,
A) any rate of inﬂation is consistent with the natural rate of unemployment in the long run. 
B) inﬂation can occur, but disinﬂation cannot occur. 
C) unemployment rates exceeding the natural rate are permanent. 
D) unemployment rates less than the natural rate are permanent.

Quizplus · Accepted Answer

The natural rate of unemployment is the rate that prevails in the long run and does not push inflation up or down. Any rate of inflation is consistent with the natural rate of unemployment in the long run.

Option B is incorrect because disinflation can occur, which means a decrease in the rate of inflation.

Option C is incorrect because unemployment rates exceeding the natural rate of unemployment are temporary and will eventually return to the natural rate in the long run.

Option D is incorrect because unemployment rates less than the natural rate of unemployment are also temporary and will eventually return to the natural rate in the long run.

In the Diagram