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

question 113

Multiple Choice

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.

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Definitions:

Work in Process

The total value of materials and labor for products that are partially completed but not yet ready for sale.

Materials

Raw inputs or basic substances used in the manufacturing or production process to create finished goods.

Materials Requisition

The document or electronic request used within a company to authorize the withdrawal of materials from inventory for use in the production process or other internal use.

Purchase Requisition

A document generated by a user or department within a company to request the purchase of specific goods or services.