If real GDP is greater than potential GDP, we would expect
A)the expected future inflation rate to decrease.
B)the money wage rate to fall.
C)the money wage rate to rise.
D)potential GDP to increase.
E)potential GDP to decrease.

Question

Quizplus · Accepted Answer

If real GDP is greater than potential GDP, it suggests that the economy is producing output in excess of its productive capacity, which can lead to labor and resource shortages, resulting in upward pressure on the wage rate. Therefore, we would expect the money wage rate to rise.

If Real GDP Is Greater Than Potential GDP, We Would