Increases in the burdens of government regulations can make production more costly for producers, shifting the short run aggregate supply curve left; it can also reduce potential output, shifting the long-run aggregate supply curve left.

Question

Quizplus · Accepted Answer

This is because government regulations can increase costs for businesses, such as compliance costs or higher taxes/fees, leading to a decrease in the amount of goods and services they are able to produce in the short run. Additionally, if regulations are overly burdensome or restrictive, they can discourage investment and innovation, which can limit the growth of potential output in the long run.

Increases in the Burdens of Government Regulations Can Make Production