Suppose the Natural Rate of Unemployment Is 4 Percent

Multiple Choice

Suppose the natural rate of unemployment is 4 percent. Then suppose that Parliament passes laws that make the labour market less flexible, so the natural rate of unemployment rises to 5 percent. If the sacrifice ratio is 3, how much higher must the inflation rate go in order to keep the unemployment rate at 4 percent in the long run?

A) 3 percent
B) 12 percent
C) 15 percent
D) There is no inflation rate that will keep unemployment at 4 percent in the long run.