The economy experiences an increase in the price level and a decrease in real domestic output.Which is a likely explanation?
A)productivity has increased
B)input prices have increased
C)excess capacity has decreased
D)government regulations have been reduced

Question

Quizplus · Accepted Answer

An increase in input prices (such as labor or raw materials) would lead to an increase in the cost of production, which would ultimately result in an increase in the price level. Additionally, the increase in input prices could also lead to a decrease in real domestic output as firms may reduce production in response to the higher costs. The other choices provided do not offer a clear explanation for the observed increase in price level and decrease in output.

The Economy Experiences an Increase in the Price Level and a Decrease