Economics • Economic BasicsMedium
How does cost-push inflation fundamentally differ from demand-pull inflation within macroeconomic dynamics?
A. Cost-push inflation originates from an aggregate demand surge driven by government expenditure
B. Cost-push inflation is driven by an increase in production costs like wages and raw materials✓ Correct Answer
C. Cost-push inflation occurs exclusively during periods of severe trade surplus and currency appreciation
D. Cost-push inflation is triggered by excessive money supply expansion without corresponding output growth
💡 Solution & Explanation
Cost-push inflation arises when overall prices increase due to rising costs of wages and raw materials, shifting the aggregate supply curve leftward. Unlike demand-pull inflation, which stems from excessive aggregate demand outpacing productive capacity, cost-push inflation simultaneously causes higher price levels and reduced economic output. This phenomenon is often linked to supply shocks in global energy markets or sudden wage demands. The Phillips curve illustrates the historical trade-off between inflation and unemployment during such shocks.
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