Is it possible for the observed unemployment rate to fall below the natural unemployment rate, and if so, under what conditions?

Show Answers

Yes, but only temporarily and accompanied by inflationYes, but only over the long term and with rising inflationYes, but only briefly and if the price level remains unchangedYes, but only in the long term and if prices stay stableNo, it cannot fall below the natural rate

Explanation

The unemployment rate can be pushed below its natural level only in the short run, and this typically leads to inflationary pressures. Over the long run, attempts to keep unemployment below its natural rate cause inflation to accelerate, making it unsustainable.