The Cleveland Federal Reserve Bank's estimate of expected inflation in 2013 is 1.5 percent. In 2013, if aggregate demand grows faster than expected, the actual inflation rate will
A) exceed 1.5 percent.
B) equal 1.5 percent because the actual inflation rate must equal the expected inflation rate.
C) be less than 1.5 percent.
D) None of the above answers are correct because there is no relationship between the actual inflation rate and aggregate demand.

Question

Quizplus · Accepted Answer

When aggregate demand grows faster than expected, it typically leads to higher prices as demand outstrips supply, resulting in an actual inflation rate that exceeds the initially expected rate.

The Cleveland Federal Reserve Bank's Estimate of Expected Inflation in 2013