Suppose the economy is at its potential output level.Which of the following best describes the price level?
A) The actual price level is less than the expected price level.
B) The actual price level is greater than the expected price level.
C) The actual price level is the same as the expected price level.
D) The actual price level is NOT the same as its expected price level.

Question

Suppose the economy is at its potential output level.Which of the following best describes the price level?  
A) The actual price level is less than the expected price level. 
B) The actual price level is greater than the expected price level. 
C) The actual price level is the same as the expected price level. 
D) The actual price level is NOT the same as its expected price level.

Quizplus · Accepted Answer

When the economy is operating at its potential output level, there is no excess demand or supply in the market, and both buyers and sellers have equal bargaining power. This means that the actual price level in the economy will be equal to the expected price level, which is based on the overall level of supply and demand in the market. Therefore, there is no reason for the actual price level to be greater or less than the expected price level.

Suppose the Economy Is at Its Potential Output Level