Figure 16-4
-Refer to the Figure 16-4.Along SRPC1,what is the expected rate of inflation?
A) 0 percent
B) 2 percent
C) 5 percent
D) 8 percent

Question

Figure 16-4 
-Refer to the Figure 16-4.Along SRPC1,what is the expected rate of inflation?
A) 0 percent 
B) 2 percent 
C) 5 percent 
D) 8 percent

Quizplus · Accepted Answer

The expected rate of inflation is 0 percent along SRPC1 because the short-run aggregate supply curve is vertical at that point. This means that the economy is at full employment and there is no excess capacity. As a result, firms are unable to increase output in response to an increase in demand, and the only way to increase output is to raise prices. However, since the economy is at full employment, there is no downward pressure on wages, and firms are able to pass on the full cost of the price increases to consumers. This results in an expected rate of inflation of 0 percent.

Figure 16-4 -Refer to the Figure 16-4.Along SRPC1,what Is the Expected Rate