What is the likely outcome if the government does not react to a cost-push inflation situation with any governmental/economic policy?
A)A significantly lower unemployment rate
B)A recession
C)A boom
D)An increase in per capita GDP

Question

Quizplus · Accepted Answer

If the government does not react to a cost-push inflation situation with any governmental/economic policy, the likely outcome is a recession.
Key Takeaway: Increased individual and government spending leads to demand-pull inflation, while an overall reduction in materials and goods supplies leads to cost-push inflation. If the government were to allow this to go unchecked without passing any policies, it is highly likely that the economy would experience a recession. During a recession, there is a lower level of demand for goods and services.

What Is the Likely Outcome If the Government Does Not