The potential output of an economy is the level of output produced when the:
A)real wage equals the nominal wage.
B)price level is constant.
C)expected real wage equals the nominal wage.
D)seasonal unemployment rate is zero.
E)expected price level equals the actual price level.

Question

Quizplus · Accepted Answer

The potential output of an economy refers to the level of output that can be produced when all resources are utilized efficiently, without leading to inflation. This occurs when the expected price level equals the actual price level, as it implies that economic agents' expectations are aligned with reality, allowing for optimal production decisions. Choices A, B, C, and D do not directly relate to the concept of potential output in the context of economic expectations and inflation.

The Potential Output of an Economy Is the Level of Output