Cost-push inflation occurs when
A) total spending expands so much that equilibrium output exceeds full-employment output.
B) a supply shock shifts the short-run aggregate supply curve to the right.
C) rising resource costs reduce short-run aggregate supply.
D) subsidies to businesses rise.

Question

Quizplus · Accepted Answer

Cost-push inflation occurs when there is a decrease in short-run aggregate supply due to rising resource costs such as wages, energy, or raw materials. This reduces the overall supply of goods and services in the economy, leading to higher prices. The other options mentioned (A, B, and D) do not directly relate to cost-push inflation.

Cost-Push Inflation Occurs When