According to the Natural Rate Hypothesis, If the Economy Begins

Multiple Choice

According to the natural rate hypothesis, if the economy begins at full employment with an unemployment rate of 5 percent and then the inflation rate increases from 2 percent to 4 percent, then the economy will

A) have lower unemployment but then return to its natural rate with an inflation rate of 4 percent.
B) stay at the 4 percent inflation rate and the natural unemployment rate will fall.
C) not see any lower unemployment, even temporarily, just higher inflation.
D) eventually return to its natural rate of 2 percent inflation and a new lower unemployment rate.
E) eventually return to its natural rate of 2 percent inflation and its natural unemployment rate of 5 percent.