If cost-push inflation occurs and the government adopts a "hands-off" policy approach, then according to the simple extended AD-AS model, in the long run the economy will:
A) Get back to where it started from
B) Get stuck with high unemployment
C) Experience an inflationary spiral
D) Have a higher price level

Question

Quizplus · Accepted Answer

In the long run, the economy will self-correct as wages and prices adjust, shifting the short-run aggregate supply curve back to its original position, bringing the economy back to its initial equilibrium.

If Cost-Push Inflation Occurs and the Government Adopts a "Hands-Off