Looking at the globalized AS/AD model, the economy can exceed potential output, without generating accelerating goods inflation, because:
A)the world price level puts a cap on the domestic price level.
B)the domestic price level always exceeds the world price level.
C)the world price level always exceeds the domestic price level.
D)the LRAS curve is no longer vertical.

Question

Quizplus · Accepted Answer

The world price level can act as a cap on the domestic price level, preventing domestic prices from accelerating even if the economy is operating above its potential output. This is because domestic producers must compete with global prices, limiting their ability to raise prices.

Looking at the Globalized AS/AD Model, the Economy Can Exceed