If a new government adopted some ill-advised regulations causing the economy to be less efficient ________.
A)the ensuing negative supply shock would lead to an immediate rise in inflation
B)in the short-run this would create a negative output gap but eventually the previous general equilibrium would be restored by subsequent rightward shifts of the AS curve
C)there would be no permanent changes in output and inflation
D)all of the above
E)none of the above

Question

Quizplus · Accepted Answer

Ill-advised regulations that make the economy less efficient can cause a negative supply shock, leading to higher production costs and thus an immediate rise in inflation as businesses pass these costs onto consumers.

If a New Government Adopted Some Ill-Advised Regulations Causing the Economy