Suppose the economy is producing at the natural rate of output and the government passes legislation that severely restricts a company's ability to reduce production costs via outsourcing. Everything else held constant,this policy action will cause ________ in the unemployment rate in the short run and ________ in inflation in the short run.
A)an increase;an increase
B)a decrease;a decrease
C)a decrease;an increase
D)no change;no change

Question

Quizplus · Accepted Answer

Restricting a company's ability to reduce production costs via outsourcing will likely lead to higher production costs domestically. In the short run, this can lead to higher prices (inflation) as companies pass these costs onto consumers. Additionally, companies facing higher production costs might reduce their workforce to cut expenses, leading to an increase in the unemployment rate.

Suppose the Economy Is Producing at the Natural Rate of Output