Question

if the government adopts a hands-off approach to cost-push inflation in the economy, then in the short run there is likely to be group of answer choices a rise in real output. a fall in unemployment. an inflationary spiral. a recession.

Answer 1

In the short run, if the government does not intervene during cost-push inflation, an inflationary spiral is likely to occur. A hands-off approach means no active fiscal policy is used to shift aggregate demand, and without intervention, inflation could become persistent.

Step-by-step explanation:

If the government adopts a hands-off approach to cost-push inflation in the economy, then in the short run there is likely to be an inflationary spiral. A hands-off approach generally means that the government is not engaging in active fiscal policy to manage the economy's aggregate demand (AD).

In the context of Keynesian economics, if there is high aggregate demand that pushes the economy beyond its potential output, the appropriate response is typically contractionary fiscal policy to prevent inflationary pressure. This could include measures such as tax increases or cuts in government spending to shift AD to the left, which would release the pressure on rising price levels while attempting to maintain full employment.

However, without such government interventions, the tendency might be for inflation to become embedded, leading to potentially continuous increases in the price level without increases in real output.