Assuming that GDP currently equals potential GDP, a cost-push inflation could result from which of the following?
A) a decrease in tax rates
B) an increase in the labor force
C) a large crop failure that boosts the prices of raw food materials
D) an increase in the nation's capital stock

Question

Quizplus · Accepted Answer

Cost-push inflation occurs when the costs of production increase, leading to a decrease in aggregate supply. A large crop failure that boosts the prices of raw food materials would increase production costs for businesses that rely on these materials, leading to cost-push inflation.

Assuming That GDP Currently Equals Potential GDP, a Cost-Push Inflation