Economics • Economic BasicsMedium
Which of the following best characterizes 'Cost-Push Inflation' in an economic system?
A. An increase in aggregate demand driven by excessive government expenditure
B. A rise in prices resulting from increases in the cost of wages and raw materials✓ Correct Answer
C. An expansion in money supply caused by central bank open market purchases
D. A sudden surge in consumer confidence leading to higher household consumption
💡 Solution & Explanation
Cost-push inflation occurs when overall prices increase due to rises in the cost of wages and raw materials, shifting the aggregate supply curve to the left. Demand-pull inflation arises from excess aggregate demand rather than supply-side cost pressures. Central bank open market purchases increase liquidity but do not directly constitute cost-push factors. The Consumer Price Index is commonly utilized by central banks to monitor these inflationary pressures.
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