Question : Cost-push inflation occurs when:
Option 1: There is an increase in aggregate demand
Option 2: There is a decrease in aggregate demand
Option 3: There is an increase in aggregate supply
Option 4: There is a decrease in the aggregate supply
Correct Answer: There is a decrease in the aggregate supply
Solution : The correct answer is (d) There is a decrease in the aggregate supply
Cost-push inflation is a type of inflation that occurs when there is a decrease in the aggregate supply of goods and services. It is typically caused by an increase in production costs faced by firms, such as labor costs, raw material prices, or taxes.
When the aggregate supply decreases, it means that firms are producing and supplying fewer goods and services in the economy. As a result, the reduced availability of goods and services relative to demand leads to upward pressure on prices. In order to maintain their profit margins, firms increase their prices to cover the higher production costs, causing cost-push inflation.
Question : Demand-pull inflation occurs when:
Option 1: Aggregate demand exceeds aggregate supply
Option 2: Aggregate supply exceeds aggregate demand
Option 3: There is a decrease in aggregate demand
Option 3: Wages and input costs increase
Option 4: The government increases taxes
Question : The equilibrium in the aggregate market occurs when:
Option 1: Aggregate demand equals aggregate supply
Option 2: Consumption equals investment
Option 3: Government expenditure equals net exports
Option 4: Saving equals investment
Question : ________, shows that unit price of foreign currency has decrease i.e., domestic currency has appreciated .
Option 1: Increase in demand
Option 2: Decrease in demand
Option 3: Increase in supply
Option 4: Decrease in supply
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