Suppose the actual rate of inflation in the economy is 5%.If we know that expected inflation is 2%,and that output-gap inflation is 1%,then we also know that

Question

Quizplus · Accepted Answer

Non-wage supply-shock inflation must equal 2% because the actual inflation rate (5%) is the sum of expected inflation (2%), output-gap inflation (1%), and non-wage supply-shock inflation, which therefore must be 2% to account for the total actual inflation.

Suppose the Actual Rate of Inflation in the Economy Is