Question

the short-run economic outcome resulting from the increase in production costs is known asstagflation . suppose now that the government decides not to take any action in response to the short-run impact of the higher oil prices. in the long run, given that the government does nothing, the output level in the economy will equal $ billion and the price level will equal .

Answer 1

Ithe long run, given that the government does nothing, the output level in the economy will equal $ billion and the price level will equal Stagflation.

• In terms of economics, stagflation, sometimes known as recession-inflation, is a state in which unemployment is consistently high, the economy is growing slowly, and the inflation rate is high or rising. It creates a conundrum for economic policy because measures taken to reduce inflation may make unemployment worse.
• Stagflation is worse than a recession since it indicates that both inflation and unemployment are at historically high levels. A scenario known as stagflation occurs when an economy experiences both rising inflation and stagnant economic growth. When an oil shock caused rapid inflation and severe unemployment in several industrialised nations in the 1970s, stagflation was first identified.

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