Cost-push inflation is characterized by a(n):
A) Increase in aggregate supply and a decrease in aggregate demand
B) Increase in aggregate demand and no change in aggregate supply
C) Decrease in aggregate supply and no change in aggregate demand
D) Decrease in both aggregate supply and aggregate demand

Question

Quizplus · Accepted Answer

Cost-push inflation is caused by a decrease in aggregate supply, which means that production costs have increased (for example, due to higher wages or raw material prices). This leads to a decrease in the quantity supplied at every price level. There is no change in aggregate demand since this type of inflation is caused by supply-side factors.

Cost-Push Inflation Is Characterized by A(n)