When the economy is at its potential output level,which of the following is not true?
A)Firms' and workers' expectations about the price level are realized.
B)The nominal wage is a good measure of the expected real wage.
C)The unemployment rate is about 4 to 6 percent.
D)The economy is producing its maximum sustainable output.
E)The actual price level is greater than the expected price level.

Question

Quizplus · Accepted Answer

When the economy is at its potential output level, firms' and workers' expectations about the price level are typically realized, and the nominal wage is a good measure of the expected real wage. The unemployment rate is also usually about 4 to 6 percent, and the economy is producing its maximum sustainable output. However, the actual price level is not necessarily greater than the expected price level, as there may be unexpected changes in prices due to factors such as supply and demand shocks. Hence, option E is not necessarily true.

When the Economy Is at Its Potential Output Level,which of the Following