Refer to the above figure. Suppose the natural rate of unemployment is 5 percent. If the government tried to reduce unemployment to 4 percent and keep it there, it must
A) raise unemployment benefits.
B) accept a permanent inflation rate of 1 percent.
C) generate higher and higher inflation rates or else people will adjust their behavior and the unemployment rate will return to 5 percent.
D) use contractionary fiscal and expansionary monetary policy.
C
Economics
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