Question

The short-run economic outcome resulting from the increase in production costs is known asstagflation . Now suppose that the government immediately pursues an accommodative policy by increasing government purchases in response to the short-run economic impact of the higher oil prices. In the long run, when the government pursues accommodative policy, the output in the economy will bebillion and the price level will be.

Answer 1

Answer: Increase

Explanation: When government pursues accommodative policy as implied in the question, it would lead to a surge or increase in price level this is as a result of lower interest rates which tends to increase money supply thereby leading to a higher economic growth. Higher growth automatically translates to a higher employment, Which would likely lead to a higher inflation rate.