Question

Assume Congress passes a law requiring anti-pollution devices be installed at every stage of the production process for goods made in the United States.

a) Using a correctly drawn AD/AS graph, explain the short-run impact of these new regulations on each of the following for the United States.

I. Output

II. Price Level

b) How would borrowers be impacted by the economic change brought about as a result of the regulations? Are they helped or hurt? Hint: Recall that “how” means “how and why.”

Answer 1