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Consider the following statements about cost push inflation in Indian economy:
It occurs when the aggregate demand for a good or service outstrips aggregate supply.
Government regulation and taxation on certain commodities can lead to cost push inflation.
It can occur when companies achieve monopoly over certain industries.
Which of the statements given above is/are correct?
- a)3 only
- b)2 and 3 only
- c)1 and 3 only
- d)1, 2 and 3
Correct answer is option 'B'. Can you explain this answer?
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Verified Answer
Consider the following statements about cost push inflation in Indian...
Option (b) – 2 and 3 only is the correct answer.
Inflation: Inflation is when a currency experiences a drop in value over time. Minor inflation is normal and a natural byproduct of a healthy economy. When inflation grows too quickly, money loses value at a quick rate and an entire economy can spiral out of control. Countries fight inflation through government regulation and adjustments to the monetary policies of central banks.
Statement 1 is incorrect: Cost-push inflation occurs when the supply of a good or service changes, but the demand for it stays the same.
Statement 2 is correct: Causes of Cost-Push Inflation: Supply shock, Higher wages, Imported inflation and Higher taxes. Increases in indirect taxes like sales tax and excise duties can also lead to inflation by forcing prices up. When value added taxes or duties are applied to products, it leads to price inflation, and the consumer ends up shouldering some of the added tax burden.
Statement 3 is correct: It occurs most often when a monopoly exists, wages increase, natural disasters occur, regulations are introduced, or exchange rates change. Cost-push inflation is rare.
Most Upvoted Answer
Consider the following statements about cost push inflation in Indian...
Understanding Cost-Push Inflation
Cost-push inflation occurs when the overall price levels rise due to increases in production costs. Let’s evaluate the statements provided:
Statement 1: It occurs when the aggregate demand for a good or service outstrips aggregate supply.
- This statement is incorrect. It describes demand-pull inflation, where demand exceeds supply, driving prices up. Cost-push inflation specifically relates to rising costs affecting supply.
Statement 2: Government regulation and taxation on certain commodities can lead to cost-push inflation.
- This statement is correct. When the government imposes higher taxes or stringent regulations on commodities, it raises production costs for businesses. These increased costs are often passed on to consumers in the form of higher prices.
Statement 3: It can occur when companies achieve monopoly over certain industries.
- This statement is correct. Monopolies can set higher prices due to lack of competition, leading to increased costs for consumers. Additionally, monopolistic practices can reduce supply, further contributing to inflationary pressures.
Conclusion:
- Therefore, the correct answer is option B (2 and 3 only). Statements 2 and 3 accurately describe factors that can lead to cost-push inflation, while statement 1 inaccurately describes the nature of this inflation type.
Key Takeaways:
- Cost-push inflation arises from increased production costs, not demand.
- Regulations and monopolies are significant contributors to this economic phenomenon.
Cost-push inflation occurs when the overall price levels rise due to increases in production costs. Let’s evaluate the statements provided:
Statement 1: It occurs when the aggregate demand for a good or service outstrips aggregate supply.
- This statement is incorrect. It describes demand-pull inflation, where demand exceeds supply, driving prices up. Cost-push inflation specifically relates to rising costs affecting supply.
Statement 2: Government regulation and taxation on certain commodities can lead to cost-push inflation.
- This statement is correct. When the government imposes higher taxes or stringent regulations on commodities, it raises production costs for businesses. These increased costs are often passed on to consumers in the form of higher prices.
Statement 3: It can occur when companies achieve monopoly over certain industries.
- This statement is correct. Monopolies can set higher prices due to lack of competition, leading to increased costs for consumers. Additionally, monopolistic practices can reduce supply, further contributing to inflationary pressures.
Conclusion:
- Therefore, the correct answer is option B (2 and 3 only). Statements 2 and 3 accurately describe factors that can lead to cost-push inflation, while statement 1 inaccurately describes the nature of this inflation type.
Key Takeaways:
- Cost-push inflation arises from increased production costs, not demand.
- Regulations and monopolies are significant contributors to this economic phenomenon.
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Consider the following statements about cost push inflation in Indian economy: It occurs when the aggregate demand for a good or service outstrips aggregate supply. Government regulation and taxation on certain commodities can lead to cost push inflation. It can occur when companies achieve monopoly over certain industries. Which of the statements given above is/are correct?a)3 onlyb)2 and 3 onlyc)1 and 3 onlyd)1, 2 and 3Correct answer is option 'B'. Can you explain this answer?
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Consider the following statements about cost push inflation in Indian economy: It occurs when the aggregate demand for a good or service outstrips aggregate supply. Government regulation and taxation on certain commodities can lead to cost push inflation. It can occur when companies achieve monopoly over certain industries. Which of the statements given above is/are correct?a)3 onlyb)2 and 3 onlyc)1 and 3 onlyd)1, 2 and 3Correct answer is option 'B'. Can you explain this answer? for UPSC 2024 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about Consider the following statements about cost push inflation in Indian economy: It occurs when the aggregate demand for a good or service outstrips aggregate supply. Government regulation and taxation on certain commodities can lead to cost push inflation. It can occur when companies achieve monopoly over certain industries. Which of the statements given above is/are correct?a)3 onlyb)2 and 3 onlyc)1 and 3 onlyd)1, 2 and 3Correct answer is option 'B'. Can you explain this answer? covers all topics & solutions for UPSC 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Consider the following statements about cost push inflation in Indian economy: It occurs when the aggregate demand for a good or service outstrips aggregate supply. Government regulation and taxation on certain commodities can lead to cost push inflation. It can occur when companies achieve monopoly over certain industries. Which of the statements given above is/are correct?a)3 onlyb)2 and 3 onlyc)1 and 3 onlyd)1, 2 and 3Correct answer is option 'B'. Can you explain this answer?.
Consider the following statements about cost push inflation in Indian economy: It occurs when the aggregate demand for a good or service outstrips aggregate supply. Government regulation and taxation on certain commodities can lead to cost push inflation. It can occur when companies achieve monopoly over certain industries. Which of the statements given above is/are correct?a)3 onlyb)2 and 3 onlyc)1 and 3 onlyd)1, 2 and 3Correct answer is option 'B'. Can you explain this answer? for UPSC 2024 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about Consider the following statements about cost push inflation in Indian economy: It occurs when the aggregate demand for a good or service outstrips aggregate supply. Government regulation and taxation on certain commodities can lead to cost push inflation. It can occur when companies achieve monopoly over certain industries. Which of the statements given above is/are correct?a)3 onlyb)2 and 3 onlyc)1 and 3 onlyd)1, 2 and 3Correct answer is option 'B'. Can you explain this answer? covers all topics & solutions for UPSC 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Consider the following statements about cost push inflation in Indian economy: It occurs when the aggregate demand for a good or service outstrips aggregate supply. Government regulation and taxation on certain commodities can lead to cost push inflation. It can occur when companies achieve monopoly over certain industries. Which of the statements given above is/are correct?a)3 onlyb)2 and 3 onlyc)1 and 3 onlyd)1, 2 and 3Correct answer is option 'B'. Can you explain this answer?.
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