Sia
Question
Statistics
Posted 10 months ago
What impact would a decrease in business regulations have in the short run?
Choose 1 answer:
(A) A positive aggregate supply shock and an increase in the rate of economic growth
(B) A positive aggregate demand shock and a decrease in inflation
(C) A positive short-run aggregate supply (SRAS) shock and lower inflation
(D) A negative aggregate demand shock and a decrease in unemployment
(E) A negative aggregate supply shock and a decrease in unemployment
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Answer from Sia
Posted 10 months ago
Solution by Steps
step 1
To understand the impact of a decrease in business regulations, we need to consider how this change affects supply and demand in the economy
step 2
A decrease in business regulations typically reduces the costs and barriers to production for firms, which can increase the overall supply of goods and services in the economy. This is known as a supply shock
step 3
A positive supply shock, in the short run, can lead to an increase in the rate of economic growth due to higher productivity and output. It can also lead to lower inflation as the increased supply of goods and services can put downward pressure on prices
step 4
The options provided suggest different combinations of shocks and economic outcomes. We need to match the expected outcome of a decrease in business regulations with the correct option
step 5
A positive short-run aggregate supply (SRAS) shock is the expected outcome of a decrease in business regulations, which should lead to lower inflation and potentially an increase in economic growth
Answer
C
Key Concept
Positive short-run aggregate supply shock
Explanation
A decrease in business regulations is likely to cause a positive SRAS shock, leading to lower inflation and an increase in economic growth in the short run.
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