The potential output of an economy is the level of output produced when the
A) real wage equals the nominal wage.
B) price level is constant.
C) expected real wage equals the inflation rate.
D) expected price level equals the unemployment rate.
E) expected price level equals the actual price level.

Question

Quizplus · Accepted Answer

The potential output of an economy is achieved when the expected price level equals the actual price level, as this indicates that the economy is operating at full capacity without unexpected inflationary or deflationary pressures.

The Potential Output of an Economy Is the Level of Output