Which of the following is consistent with constant inflation: expected future inflation of ________,output-gap inflation of ________,and supply-shock inflation ________.

Question

Quizplus · Accepted Answer

With constant inflation, expected future inflation, output-gap inflation, and supply-shock inflation should all be zero. However, since perfect stability is rare in the real world, the closest answer choice is C where expected future inflation is 2%, output-gap inflation is 0%, and supply-shock inflation is 0%. This means that inflation is primarily driven by expected future inflation as the economy is operating at full capacity with no slack or supply shocks.

Which of the Following Is Consistent with Constant Inflation: Expected