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:

Balance Sheet Accounts

Accounts that are reported on the balance sheet and include assets, liabilities, and equity sections, reflecting the financial position of a company at a specific time.

Owner's Equity

The residual interest in the assets of a business after deducting its liabilities.

Total Liabilities

The sum of all financial obligations a company owes to outside parties, including loans, accounts payable, and mortgages.

Property Plant and Equipment

These are long-term tangible assets owned by a business, used in producing goods or services and not expected to be consumed or converted into cash within a year.