Assuming that GDP currently equals potential GDP, a cost- push inflation could result from which of the following?

Question

Quizplus · Accepted Answer

A cost-push inflation is caused by increases in the cost of production, such as an increase in the cost of raw materials. A large crop failure that boosts the prices of raw food materials would lead to increased costs for firms and, if they are not able to pass those costs onto consumers, they may reduce output or raise prices, leading to a decrease in real GDP and an increase in the price level. However, choices A, B, and C would all lead to an increase in potential GDP, which would not cause a cost-push inflation as long as supply kept up with demand.

Assuming That GDP Currently Equals Potential GDP, a Cost- Push