A rise in the price level because of an increase in the money wage rate
A) definitely triggers a demand-pull inflation.
B) might trigger a demand-pull inflation.
C) definitely triggers a cost-push inflation.
D) might trigger a cost-push inflation.

Question

Quizplus · Accepted Answer

An increase in the money wage rate can lead to higher production costs for firms, which results in a shift in the short-run aggregate supply curve to the left, causing higher prices. This type of inflation is known as cost-push inflation. However, the extent to which it triggers inflation depends on the elasticity of demand and supply in the economy, so it might only cause a mild or temporary inflationary impact. Therefore, the best choice is D, which acknowledges the possibility of a cost-push inflation triggered by a rise in the money wage rate.

A Rise in the Price Level Because of an Increase