When current output rises above potential output, we hire fewer workers, which reduces the costs of production. The change in inflation will be negative.

Question

Quizplus · Accepted Answer

When current output rises above potential output, it typically indicates an overheating economy, leading to increased demand for labor and potentially higher wages, which can contribute to positive inflation as costs of production may rise, not fall.

When Current Output Rises Above Potential Output, We Hire Fewer