What will occur in the short run if there is cost-push inﬂation and the government adopts a hands-off approach to it?
A) an increase in real output
B) an inﬂationary spiral
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, where prices increase due to rising costs of production and inputs, typically leads to reduced demand for goods and services because consumers' purchasing power is eroded. A hands-off approach by the government means no intervention to counteract this inflation, such as stimulating demand or controlling prices. Consequently, businesses may produce less and lay off workers, leading to high unemployment and a loss of real output.

What Will Occur in the Short Run If There Is