Question

If these policies are​ successful, we would expect to see​ Oregon's natural unemployment rate​ ______.

A.not change
B.rise
C.fall to zero percent
D.fall

Answer 1

If the policies are successful in pushing aggregate demand (AD) to the right, the natural unemployment rate in Oregon would not change. Over time, wages will be bid up, shifting the short-run aggregate supply (AS) curve back to the left, resulting in a higher price level.

Step-by-step explanation:

The natural unemployment rate in Oregon would not change if the policies are successful.

According to the information provided, an unemployment rate of zero percent is inconsistent with market forces and is well below the rate that is consistent with potential GDP and the natural rate of unemployment. Therefore, if the policies are successful in pushing aggregate demand (AD) to the right, there may be a short-term decrease in unemployment below the natural rate, but over time, wages will be bid up, shifting the short-run aggregate supply (AS) curve back to the left.

This would result in a higher price level, but the economy would still operate at potential GDP and the natural rate of unemployment as determined by the long-run AS curve.