If actual real GDP (Q)is permanently greater than natural real GDP (YN),
A)the economy is off its short-run Phillips Curve.
B)the actual rate of inflation must be less than the expected rate.
C)the economy is on its long-run Phillips Curve.
D)there must be a continuous acceleration of inflation.

Question

Quizplus · Accepted Answer

When actual real GDP is permanently greater than natural real GDP, it implies that the economy is operating beyond its sustainable capacity, leading to higher demand for goods and services than can be produced in the long run. This situation results in continuous upward pressure on prices, or inflation, which, according to the Phillips Curve concept, necessitates a continuous acceleration of inflation to maintain the level of output above the natural rate. This is because, in the long run, the Phillips Curve is vertical at the natural rate of unemployment, indicating that output above the natural level is unsustainable without accelerating inflation.

If Actual Real GDP (Q)is Permanently Greater Than Natural Real