Cost pressures are most intense
A)At low rates of output.
B)When unemployment falls.
C)As the economy approaches capacity.
D)None of the choices are correct.

Question

Quizplus · Accepted Answer

Cost pressures tend to be most intense as the economy approaches its capacity because resources become scarcer and more expensive, and firms have to pay higher wages and prices in order to procure them. At low rates of output, firms may experience some cost pressures due to fixed costs, but they are not as significant as those experienced when resources become constrained, which is more likely to happen as the economy approaches full capacity. When unemployment falls, workers become scarcer and firms may have to raise wages in order to attract and retain them, but this is not always enough to produce significant cost pressures.

Cost Pressures Are Most Intense