When a cost-push inflation starts
A) real GDP rises faster than the quantity of money.
B) the short-run aggregate supply curve shifts rightward.
C) the price level falls and the money wages rises.
D) the price level rises and real GDP decreases.

Question

Quizplus · Accepted Answer

When a cost-push inflation starts, firms experience an increase in their production costs, causing a decrease in the aggregate supply in the short-run. As a result, the price level increases, and real GDP decreases, implying that the economy experiences inflation accompanied by a decrease in output. Hence, the best choice is D.

When a Cost-Push Inflation Starts