3. Suppose the economy is in general equilibrium. What would happen if the natur

Question

3. Suppose the economy is in general equilibrium. What would happen if the natural rate of unemployment were to increase?

a. According to the Phillips curve, the resulting positive unemployment gap would exert inflationary pressures.

b. According to Okun's law, the resulting positive unemployment gap would be consistent with a positive output gap.

c. According to the AD/AS framework, the LRAS curve would shift to the left and the resulting output gap would have to be closed by subsequent downward shifts on the SRAS curve to a lower equilibrium level of inflation.

d. All of the above.

e. None of the above.

Explanation / Answer

e. None of the above.

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