-Refer to the Above Figure

Multiple Choice

-Refer to the above figure. Suppose the natural rate of unemployment is 5 percent. If the government tried to reduce unemployment to 4 percent and keep it there, it must

A) raise unemployment benefits.
B) accept a permanent inflation rate of 1 percent.
C) generate higher and higher inflation rates or else people will adjust their behavior and the unemployment rate will return to 5 percent.
D) use contractionary fiscal and expansionary monetary policy.