What is the likely consequence of the government failing to intervene when cost-push inflation arises?

Question

Multiple choice question.

Expanding aggregate demand

A lingering recession

Even higher inflation

A positive GDP gap

Answer 1

The likely consequence of the government failing to intervene when cost-push inflation arises is:

Even higher inflation

Cost-push inflation occurs when the cost of production increases, leading producers to raise prices to maintain profit margins. Without government intervention, the economy may experience sustained higher prices, potentially leading to a wage-price spiral and further inflationary pressures.