Causes and Impact of Inflation Quick Check

Question

2 of 52 of 5 Items
Question
Which of the following scenarios illustrates cost-push inflation?(1 point)
Responses

A large decrease in consumption decreases aggregate demand, pushing prices lower throughout the economy.
A large decrease in consumption decreases aggregate demand, pushing prices lower throughout the economy.

A large increase in consumption increases aggregate demand, pushing prices higher throughout the economy.
A large increase in consumption increases aggregate demand, pushing prices higher throughout the economy.

An increase in the price of raw materials decreases aggregate supply, pushing prices higher throughout the economy.
An increase in the price of raw materials decreases aggregate supply, pushing prices higher throughout the economy.

A decrease in the price of raw materials increase aggregate supply, pushing prices lower throughout the economy.

Answer 1

The scenario that illustrates cost-push inflation is:

An increase in the price of raw materials decreases aggregate supply, pushing prices higher throughout the economy.

Cost-push inflation occurs when the costs of production increase (such as rising prices of raw materials), leading to a decrease in aggregate supply, which in turn pushes prices higher.