In the aggregate supply-aggregate demand model, if every person in the economy correctly anticipates the inflation rate, the unemployment rate will
A) be negative.
B) be more than the natural rate of unemployment.
C) equal the natural rate of unemployment.
D) equal zero.

Question

Quizplus · Accepted Answer

If every person in the economy correctly anticipates the inflation rate, there will be no surprises and wage and price adjustments will occur smoothly. This will lead to the economy operating at its natural level of output and the unemployment rate being equal to the natural rate of unemployment.

In the Aggregate Supply-Aggregate Demand Model, If Every Person in the Economy