GK
BUSINESS ECONOMICS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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cost-push inflation
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demand-pull inflation
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Either A or B
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None of the above
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Detailed explanation-1: -Cost-push inflation is caused by wage increases enforced by unions and profit increases by employers.
Detailed explanation-2: -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-3: -Cost-push inflation occurs when overall prices increase (inflation) due to increases in the cost of wages and raw materials. Cost-push inflation can occur when higher costs of production decrease the aggregate supply (the amount of total production) in the economy.
Detailed explanation-4: -Further, cost-push inflation also affects employment as the decline in real GDP results in decreased demand for goods and services, which compels firms to lay off workers and reduce work. This type of inflation results in a fall in living standards.
Detailed explanation-5: -An increase in wages translate to a rise in the price of goods, this is known as a wage push inflation.