Which of the following statements about a cost- push inflation is correct?
A) Cost- push inflation starts when an increase in aggregate demand "pushes" costs higher.
B) The United States has never experienced a cost- push inflation.
C) Cost- push inflation might start with a rise in the price of raw materials, but it requires increases in the quantity of money to persist.
D) To persist, cost- push inflation needs a continual series of cost hikes with no change in aggregate demand.

Question

Quizplus · Accepted Answer

Cost-push inflation begins with a rise in production costs, such as wages or raw materials, which leads to higher prices. However, for cost-push inflation to persist and become more general, it typically requires an increase in the quantity of money in circulation, leading to higher aggregate demand. Therefore, option A is incorrect as cost-push inflation does not necessarily start with an increase in aggregate demand. Option B is incorrect as the US has faced cost-push inflation in the past, such as in the 1970s. Option D is incorrect as cost-push inflation can persist even with changes in aggregate demand.

Which of the Following Statements About a Cost- Push Inflation