Question:
Cost-push inflation is distinct from demand-pull inflation because it is caused by:
(1) An increase in money supply.
(2) An increase in government spending.
(3) A decrease in aggregate supply due to higher input costs.
(4) An increase in consumer confidence.
(5) A decrease in income taxes.
Correct Answer:
(3)
Answer Explanation:
Cost-push inflation is a supply-side phenomenon. It happens when the costs of production (wages, oil, raw materials) rise, shifting the Aggregate Supply (AS) curve to the left, raising prices while lowering GDP (stagflation).
Topic: Inflation Year: 2024
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