Which of the following will likely lead to cost-push inflation? Select the two correct answers.
a
An ongoing war causes government spending to nearly double in quantity.
b
Consumers become more comfortable with debt, increasing their spending as they take on more loans.
c
Exports increase dramatically after a relative drop in price.
d
A tornado destroys factories and lowers supply levels throughout the economy.
e
An increase in the price of oil has reduced supply of all goods and services that use oil as an input.
1 answer
d and e are the correct answers. A decrease in supply due to natural disasters or increased input costs such as oil prices can cause cost-push inflation, as producers will raise prices to maintain their profit margins. The other options do not necessarily directly affect supply or production costs.
1 answer