If cost-push inflation occurs and the government adopts a hands-off policy approach, then, according to the simple extended AD-AS model, in the long run the economy will
A)get back to where it started from.
B)get stuck with high unemployment.
C)experience an inflationary spiral.
D)have a higher price level.

Question

Quizplus · Accepted Answer

In the long run, according to the AD-AS model, the economy self-corrects as wages and prices adjust, bringing the economy back to its natural level of output.

If Cost-Push Inflation Occurs and the Government Adopts a Hands-Off