What will occur in the short run if there is cost-push inflation and if the government adopts a hands-off approach to it?
A)an increase in long-run aggregate supply
B)a decrease in long-run aggregate supply
C)low unemployment and a loss of real output
D)high unemployment and a loss of real output

Question

Quizplus · Accepted Answer

Cost-push inflation leads to an increase in the general price level, which reduces the purchasing power of consumers and businesses. In the short run, firms may not be able to adjust to the higher costs and may reduce output, leading to a decrease in aggregate supply. If the government adopts a hands-off approach and does not intervene, high unemployment and a loss of real output are likely to occur.

What Will Occur in the Short Run If There Is