The economy starts out at a full-employment equilibrium.Some events then occur that generate a cost-push inflation.
Which of the following events might cause a cost-push inflation?

Question

Quizplus · Accepted Answer

An increase in the money wage rate or an increase in the money prices of raw materials would increase production costs for firms, leading to a decrease in aggregate supply (output) at every price level. This would cause a leftward shift of the short-run aggregate supply curve, leading to a higher price level and lower output, resulting in a cost-push inflation. The other choices are not directly related to cost-push inflation.

The Economy Starts Out at a Full-Employment Equilibrium