A short-run equilibrium with an output gap of zero implies
A) zero inflation in the near future.
B) the rate of inflation will remain the same.
C) the rate of inflation will rise.
D) the rate of inflation will fall.
E) firms have no incentive to raise the prices of their goods and services.

Question

Quizplus · Accepted Answer

In a short-run equilibrium with an output gap of zero, the economy is operating at its potential output, meaning there is no upward or downward pressure on inflation, so the rate of inflation will remain the same.

A Short-Run Equilibrium with an Output Gap of Zero Implies