2 MULTIPLE CHOICE questions ABOUT COST-PUSH INFLATION. 1. Which of the following

Question

2 MULTIPLE CHOICE questions ABOUT COST-PUSH INFLATION.

1. Which of the following could cause cost-push inflation? - MULTIPLE CHOICE

A .The upward pressure by unions on wages.

B. High interest rates demanded by lenders.

C. Aggregate expenditures exceeding the economy's capacity to produce.

D. Attempts by firms to increase productivity.

E. The increased demand for imported goods.

After choosing your choice please briefly explain why.

2. Which of the following is a variation of cost-push inflation?

A. Import-push inflation.

B. Demand-deficient inflation.

C. Galloping inflation.

D. National inflation.

After choosing please briefly explain why.

Explanation / Answer

Option (A) is most appropriate.

Cost-push inflation occurs when there is a persistent increase in the cost of production. If unions put upward pressure on wages, the wage rate most likely increases which increases cost of labor and so, cost of production, resulting in cost push inflation.

Note: High interest rate by lenders will increase the interest payable by the firm, which will increase the firm's non-production cost. If you can select more than 1 option, you can select both (A) & (B).

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