Which of the following characterizes an economy that is at its potential output level?
A) Firms' and workers' expectations about the price level are NOT realized.
B) The nominal wage is NOT a good measure of the expected real wage.
C) The unemployment rate is about 2 percent.
D) The economy is producing its minimum sustainable output.

Question

Which of the following characterizes an economy that is at its potential output level?  
A) Firms' and workers' expectations about the price level are NOT realized. 
B) The nominal wage is NOT a good measure of the expected real wage. 
C) The unemployment rate is about 2 percent. 
D) The economy is producing its minimum sustainable output.

Quizplus · Accepted Answer

When an economy is at its potential output level, it means that it is producing at the maximum sustainable level without causing inflation. At this level, the economy is also expected to have a natural rate of unemployment, which is about 2 percent. Options A, B, and D do not describe an economy that is at its potential output level.

Which of the Following Characterizes an Economy That Is at Its