Natural-rate hypothesis

Natural-rate hypothesis is the premise that fluctuations in aggregate demand influence output, employment, and unemployment only in the short run, and that in the long run these variables return to the levels implied by the classical model.

Definition

According to Macroeconomics by Mankiw (7th edition),

Natural-rate hypothesis. The premise that fluctuations in aggregate demand influence output, employment, and unemployment only in the short run, and that in the long run these variables return to the levels implied by the classical model.