If the economy is at potential output, expected inflation

Name: If the economy is at potential output, expected inflation
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Question

Quizplus · Accepted Answer

When the economy is at potential output, it means that it is producing at the maximum sustainable level without putting pressure on resources such as labor and capital. Given that there is no excess demand or supply in the market, it is expected that the price level will remain stable. Therefore, the expected inflation rate should be equal to the actual inflation rate.

If the Economy Is at Potential Output, Expected Inflation