ECONOMICS
INFLATION
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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A an appreciation of a country’s currency
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B an increase in the cost of borrowing
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C an increase in the level of its import tariffs
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D an increase in the price of oil
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Detailed explanation-1: -An increase in the costs of raw materials or labor can contribute to cost-pull inflation. Demand-pull inflation can be caused by an expanding economy, increased government spending, or overseas growth.
Detailed explanation-2: -In fact, excess demand and cost-push forces operate simultaneously and interdependently in an inflationary process. Thus inflation is mixed demand-pull and cost-push when price level changes reflect upward shifts in both aggregate demand and supply functions.
Detailed explanation-3: -Too little supply or too much demand can mean higher prices for everybody. Demand-pull inflation is when growing demand for goods or services meets insufficient supply, which drives prices higher.
Detailed explanation-4: -Demand-pull inflation occurs due to increased aggregate demand beyond full employment level, while cost-push inflation occurs due to rising per-unit production costs. Cost-push inflation is more likely to be associated with a negative GDP gap.