ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Cost-push inflation (also known as wage-push inflation) occurs when overall prices increase (inflation) due to increases in the cost of wages and raw materials. Higher costs of production can decrease the aggregate supply (the amount of total production) in the economy.

Detailed explanation-2: -Cost-push inflation happens when there is a decline in the supply of goods and services and demand remains unchanged or even grows, driving prices and inflation higher.

Detailed explanation-3: -Cost-push inflation is associated with a supply shock-when one or more factors decrease aggregate supply and increase costs. The costs are reflected through higher prices for consumers, but it does not diminish aggregate demand.

Detailed explanation-4: -#1 – Wage push inflation One of the causes of cost-push inflation is when the increase in labor wages is more than their productivity at work. Since the laborers have to be paid more, the producers increase the price of finished goods to pass on the hike in production cost that eventually results in inflation.

Detailed explanation-5: -Policies to reduce cost-push inflation could include monetary, fiscal policy and also supply side policies. The government could pursue deflationary fiscal policy (higher taxes, lower spending) or monetary authorities could increase interest rates.