Actual inflation would be 2 percent when expected future inflation is _, output- gap inflation is _, and supply- shock inflation is .

Question

Quizplus · Accepted Answer

Expected future inflation is at 2%, therefore it does not contribute to or detract from actual inflation. Output-gap inflation is at 0% because the economy is operating at its full potential, so there's no pressure from demand for prices to rise. Lastly, supply-shock inflation is also at 0% because there's no negative shock to supply, such as a drought or natural disaster, that would result in higher prices. Therefore, actual inflation would be at 2%.

Actual Inflation Would Be 2 Percent When Expected Future Inflation