In an attempt to keep unemployment rate below its natural rate, many Latin American countries used expansionary fiscal and monetary policies heavily. These policy choices were the main reason why these same countries

a. true
b. false

True.

By keeping u below un, these countries slowly but firmly changed price expectations and induced very high levels of inflation. By the time these countries realized they wanted to lower inflation, they had to resort to contractionary policies. Thus, they increased the unemployment rate above un so as to decrease the inflation rate over time until it reached more manageable levels.