Figure 17-2
-Refer to Figure 17-2.Suppose the economy is at point B in the figure above.Which of the following is true?

Question

Figure 17-2 
-Refer to Figure 17-2.Suppose the economy is at point B in the figure above.Which of the following is true?

Quizplus · Accepted Answer

The expected rate of inflation is 3% because the economy is at point B, which is on the short-run aggregate supply curve SRAS1. The short-run aggregate supply curve is upward sloping, which means that as the price level increases, the quantity of output supplied also increases. This is because firms are willing to produce more output at higher prices. The expected rate of inflation is the rate of inflation that firms expect to occur in the future. Since the economy is at point B, firms expect the price level to increase by 3% in the future.

Figure 17-2 -Refer to Figure 17-2.Suppose the Economy Is at Point B