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

Question

Quizplus · Accepted Answer

If real GDP is greater than potential GDP, the economy is operating above its capacity, meaning there is higher demand for goods and services than what can be produced. As a result, businesses will need to hire more workers, pushing up the money wage rate in order to attract workers. Therefore, the correct answer is B, the money wage rate will rise.

If Real GDP Is Greater Than Potential GDP, We Would