In the case of cost-push inflation, other things being equal:
A) both the inflation rate and the unemployment rate rise at the same time.
B) the unemployment rate rises but the inflation rate falls.
C) the inflation rate rises but the unemployment rate falls.
D) both the inflation rate and the unemployment rate fall.

Question

Quizplus · Accepted Answer

Cost-push inflation is caused by an increase in production costs, such as wages, rents, or raw materials. This results in decreased supply and higher prices. Therefore, the inflation rate will rise as a result of cost-push inflation. However, the increase in production costs may lead to a decrease in profit margins for companies, forcing them to reduce their workforce or cut back on production, which results in increased unemployment rates. Therefore, the unemployment rate may fall but the inflation rate will rise in case of cost-push inflation.

In the Case of Cost-Push Inflation, Other Things Being Equal