When the economy is at its potential output level,which of the following is not true?
A)Firms' and workers' expectations about the price level are realized.
B)The nominal wage is a very poor measure of the expected real wage.
C)The unemployment rate is about 4 to 6 percent.
D)The economy is producing its maximum sustainable output.
E)The actual price level equals the expected price level.

Question

Quizplus · Accepted Answer

When the economy is at its potential output level, the nominal wage is a good measure of the expected real wage. This is because there is no cyclical unemployment, which means that there is no deviation of actual unemployment from its natural rate. Thus, the actual and expected inflation rates are equal, and the nominal wage reflects the real wage.

When the Economy Is at Its Potential Output Level,which of the Following