Economic Performance Unit Test

Question

10 of 1810 of 18 Items

Question
Which of the following will likely lead to cost-push inflation? Select the two correct answers.(1 point)
Responses

An ongoing war causes government spending to nearly double in quantity.
An ongoing war causes government spending to nearly double in quantity.

A tornado destroys factories and lowers supply levels throughout the economy.
A tornado destroys factories and lowers supply levels throughout the economy.

Consumers become more comfortable with debt, increasing their spending as they take on more loans.
Consumers become more comfortable with debt, increasing their spending as they take on more loans.

An increase in the price of oil has reduced supply of all goods and services that use oil as an input.
An increase in the price of oil has reduced supply of all goods and services that use oil as an input.

Exports increase dramatically after a relative drop in price.

Answer 1

Cost-push inflation occurs when the overall price level rises due to increases in the costs of production and a decrease in the supply of goods and services.

The two correct responses likely to lead to cost-push inflation are:

1. A tornado destroys factories and lowers supply levels throughout the economy.
2. An increase in the price of oil has reduced supply of all goods and services that use oil as an input.

Both of these factors lead to reduced supply and increased production costs, which are characteristic of cost-push inflation.