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 the aggregate price level 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 outsourcing increases production costs, leading to reduced output and higher unemployment in the short run, while also causing an increase in the aggregate price level due to higher production costs.

Suppose the Economy Is Producing at the Natural Rate of Output