At the start of a cost- push inflation,
A) the short- run aggregate supply curve shifts rightward.
B) prices and unemployment are rising.
C) productivity rises.
D) real GDP increases faster than the quantity of money.

Question

Quizplus · Accepted Answer

At the start of cost-push inflation, the rising costs of production lead to a decrease in short-run aggregate supply, causing prices to rise. This rise in prices leads to inflation, and often accompanies an increase in unemployment as production slows down. Productivity does not usually rise during cost-push inflation, as it is the increase in production costs that is causing the inflation in the first place. Finally, real GDP may increase, but not faster than the quantity of money, as inflation and rising prices can lead to a decrease in purchasing power and overall economic growth.

At the Start of a Cost- Push Inflation