When cost-push inflation starts,real GDP ________ and the unemployment rate ________.
A)decreases;falls
B)does not change;falls
C)decreases;rises
D)does not change;does not change
E)increases;falls

Question

Quizplus · Accepted Answer

When cost-push inflation starts, it means that the cost of production has increased, leading to a decrease in the aggregate supply. This leads to a decrease in real GDP, as the overall level of production in the economy falls. Additionally, due to the decrease in production, firms may lay off workers which leads to a rise in the unemployment rate. Therefore, the correct option would be C: decreases; rises.

When Cost-Push Inflation Starts,real GDP ________ and the Unemployment Rate