What impact does a sudden increase in input prices have on the price level and real output?
A)The price level increases and real output decreases.
B)The price level increases and real output increases.
C)The price level decreases and real output increases.
D)The price level decreases and real output decreases.

Question

Quizplus · Accepted Answer

A sudden increase in input prices will increase the cost of production for firms, who will then increase the prices of their goods and services to maintain their profit margins. This leads to an increase in the price level. Additionally, firms may reduce production or output to minimize their costs, leading to a decrease in real output.

What Impact Does a Sudden Increase in Input Prices Have