Question

Monetary policy cannot change the natural rate of unemployment, but other government policies can. To which...

Monetary policy cannot change the natural rate of unemployment, but other government policies can. To which of the following curves does this statement apply?

Homework Answers

Answer #1

This statement applied to Philips Curve.Monetary policy cannot influence the natural rate of unemployment.
However, other types of policy can.A policy change that reduced the natural rate of unemployment would shift the long-run Phillips curve to the left.

The natural rate of unemployment is the unemployment rate toward which the economy tends to gravitate in the long run.Not necessarily the socially desirable rate of unemployment.Nor is it constant over time

In addition to shifting the long-run Phillips curve to the left, note that lower unemployment means more workers are producing goods and services, the quantity of goods and services supplied would be larger at any given price level, and the long-run aggregate-supply curve would shift to the right.The economy would enjoy lower unemployment and higher output for any given rate of money growth and inflation

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