Suppose the government uses contractionary monetary policy to reduce inflation from 10 to 6 percent. If the policy change is preannounced and people have rational expectations, then

Question 10 options:

A)

the natural rate will permanently increase to 8 percent.

B)

unemployment will rise to 8 percent in the short run.

C)

unemployment will remain at 5 percent as the inflation rate falls.

D)

the inflation rate will remain stuck at 10 percent.