An important feature of the inflation-expectations augmented aggregate supply curve is that
A)unemployment cannot increase as long as inflationary expectations remain constant
B) output will be above the full-employment level if actual prices are below expected prices
C)if actual prices are above expected prices, the real wage rate is too high to achieve full employment
D)the full-employment level of output is supplied if expected prices are equal to actual prices
E)all of the above

Question

Quizplus · Accepted Answer

The inflation-expectations augmented aggregate supply curve posits that the full-employment level of output is supplied when expected prices match actual prices. This is because firms and workers make decisions based on their expectations of future prices, and when these expectations are accurate, the economy operates efficiently, without unexpected inflationary or deflationary pressures.

An Important Feature of the Inflation-Expectations Augmented Aggregate Supply Curve