Which statement about the long-run unemployment is true according to mainstream economists?

• A. Discretionary monetary and fiscal policy can permanently reduce unemployment in the long run.
• B. Monetary policy cannot lower the long-run unemployment rate.
• C. Fiscal policy is the only way to affect unemployment in the long run.
• D. Unemployment is completely determined by external factors.

Answer: (B)

In the long run, unemployment tends toward the natural rate, which is shaped by structural features of the labor market—like matching frictions, the mix of skills, demographics, wage rigidity, and similar factors. Monetary policy can influence inflation and demand in the short run, but as prices and wages adjust over time, the unemployment rate returns to this natural level. That’s why a statement saying monetary policy cannot permanently lower the long-run unemployment rate is true: you can push unemployment down temporarily, but not for the long run.

The other choices don’t fit because they imply permanent or exclusive effects from policy or external factors. Discretionary monetary and fiscal policy don’t create a lasting drop in unemployment in the long run; fiscal policy isn’t the only lever, and unemployment isn’t determined entirely by external factors—structural features and policy can influence the long-run rate, even if not permanently.