The arguments of Friedman and Phelps would suggest that other things the same,a country that pursues a disinflationary policy that the public does not find completely credible
A)should not see an increase in the unemployment rate even in the short run.
B)will having rising unemployment for a while,but then return to the natural rate of unemployment.
C)will have a permanently higher unemployment rate.
D)None of the above is suggested by the arguments of Friedman and Phelps.

Question

Quizplus · Accepted Answer

According to the arguments of Friedman and Phelps, a disinflationary policy that the public does not find completely credible may lead to a temporary increase in unemployment as workers may not immediately adjust their expectations regarding wages and prices. However, over time, as expectations adjust and the natural rate of unemployment is reached, the unemployment rate should return to its original level. Therefore, the correct answer is B. Option A is incorrect because Friedman and Phelps suggest that a disinflationary policy can lead to short-run unemployment. Option C is incorrect because they do not argue that unemployment would be permanently higher. Option D is incorrect because B is the suggested answer.

The Arguments of Friedman and Phelps Would Suggest That Other