ECONOMICS
BUSINESS CYCLES
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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An increase in demand for goods and services
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An increase in supply
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A rise in production costs passed on to consumers
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A fall in the price of imports
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Detailed explanation-1: -Cost-push inflation can occur when higher costs of production decrease the aggregate supply (the amount of total production) in the economy. Since the demand for goods hasn’t changed, the price increases from production are passed onto consumers creating cost-push inflation.
Detailed explanation-2: -Cost-push inflation occurs when supply costs rise or supply levels fall. Either will drive up prices-as long as demand remains the same. Shortages or cost increases in labor, raw materials, and capital goods create cost-push inflation. These components of supply are also part of the four factors of production.
Detailed explanation-3: -Examples of Cost-Push Inflation Electric power suppliers need high levels of natural gas to create electricity. When global policies, war, or natural disasters drastically reduce the oil supply, gasoline prices rise because demand remains relatively stable even as supply shrinks.
Detailed explanation-4: -Cost-push inflation upends the correlation between inflation and unemployment from negative to positive. The impact of productive potential is uncertain. Higher wages may cut employment more than output, raising productivity while leaving per capita GDP lower.