If the inflation rate is 4 percent a year and everyone expected 2 percent a year,then the potential level of real GDP will increase.

Question

Quizplus · Accepted Answer

The inflation rate refers to the rate at which the general level of prices for goods and services is increasing over time. It does not directly affect the potential level of real GDP, which refers to the maximum amount of output that an economy can produce with all its resources fully employed. Therefore, whether the inflation rate matches or exceeds expectations, it should not affect the potential level of real GDP.

If the Inflation Rate Is 4 Percent a Year and Everyone