In the Short-Run, Society Faces a Tradeoff Between Inflation and Unemployment

question 139

True/False

In the short-run, society faces a tradeoff between inflation and unemployment.

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Definitions:

Recessionary Gap

A situation where an economy's real GDP is lower than its potential GDP, leading to underutilized resources and higher unemployment.

Potential Output

The maximum amount of goods and services an economy can produce when it is using all of its resources efficiently.

Deadweight Loss

A loss of economic efficiency that can occur when the equilibrium for a good or a service is not achieved or is not achievable, often due to market failure or intervention.

Potential Level

The capacity of an economy to produce goods and services when at full employment, indicating the maximum sustainable output level.