When the economy is experiencing cost-push inflation, an inflationary spiral is likely to result when the government adopts a hands-off policy.

Question

Quizplus · Accepted Answer

When the economy is experiencing cost-push inflation, where prices rise due to increased production costs, an inflationary spiral may occur if the government adopts a hands-off policy. In such a scenario, the inflationary pressures can become self-reinforcing and lead to further price increases. Therefore, the government may need to take some monetary or fiscal policy actions to control the inflationary pressures and prevent an inflationary spiral.

When the Economy Is Experiencing Cost-Push Inflation, an Inflationary Spiral