Cost-push inflation occurs
A) when the aggregate supply curve shifts to the left, while aggregate demand remains stable.
B) when the aggregate supply curve shifts to the right, while aggregate demand remains stable.
C) when the aggregate demand curve shifts to the left, while aggregate supply remains stable.
D) when the aggregate demand curve shifts to the right, while aggregate supply remains stable.

Question

Quizplus · Accepted Answer

Cost-push inflation occurs when there is an increase in the cost of production, such as an increase in wages or raw material prices, leading to a decrease in aggregate supply. This leftward shift in aggregate supply increases the price level, causing inflation. Aggregate demand remains stable in this scenario, as there has not been any change in consumer or investment spending.

Cost-Push Inflation Occurs