When there is a cost- push inflation,
A) the short- run aggregate supply curve shifts rightward.
B) workers demand higher money wages because of the inflation.
C) the aggregate demand curve shifts leftward because of the cost hikes.
D) None of the above answers is correct.

Question

Quizplus · Accepted Answer

In cost-push inflation, prices rise due to an increase in the cost of production, such as raw materials or wages. This prompts workers to demand higher wages to maintain their standard of living, which in turn leads to higher production costs and further inflation. Therefore, workers demanding higher money wages is a characteristic of cost-push inflation. The short-run aggregate supply curve may shift leftward, not rightward, due to the cost hikes. The aggregate demand curve may also shift leftward as consumers lose purchasing power due to the higher prices. However, these are not the primary characteristics of cost-push inflation.

When There Is a Cost- Push Inflation