With 'cost-push inflation', initially:
A)the price level and real GDP both increase.
B)only real GDP changes while the price level remains constant.
C)the price level rises and real GDP declines.
D)All of these options are correct.

Question

Quizplus · Accepted Answer

'Cost-push inflation' occurs when the production costs of goods and services increase, leading to a decrease in the supply and thus, a rise in prices. This causes a reduction in real GDP as consumers demand less due to increased prices. Therefore, the correct choice is C - the price level rises and real GDP declines.

With 'Cost-Push Inflation', Initially