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Consider the following statements with reference to the cost-push inflation:
1. It is inflation caused by an increase in prices of inputs like labor and raw material.
2. This inflation is always a strong indicator of an expanding economy.
Which of the statements given above is/are correct?
- a)1 only
- b)2 only
- c)Both 1 and 2
- d)Neither 1 nor 2
Correct answer is option 'A'. Can you explain this answer?
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Verified Answer
Consider the following statements with reference to the cost-push infl...
The correct answer is: (a) 1 only.
Statement 1: It is inflation caused by an increase in prices of inputs like labor and raw material.
This statement is correct. Cost-push inflation, also known as supply-side inflation, is a type of inflation that occurs when the prices of inputs like labor and raw materials increase, leading to an overall increase in the prices of goods and services. This can occur due to a variety of factors, such as an increase in the cost of production, a decrease in supply, or an increase in taxes or tariffs.
Statement 2: This inflation is always a strong indicator of an expanding economy.
This statement is incorrect. Cost-push inflation is not necessarily an indicator of an expanding economy. It can occur regardless of the overall state of the economy. Inflation can occur even in an economy that is experiencing a slowdown or recession, as long as the prices of inputs are increasing.
Most Upvoted Answer
Consider the following statements with reference to the cost-push infl...
Cost-Push Inflation
Cost-push inflation refers to a situation where there is an increase in the prices of inputs, such as labor and raw materials, leading to a rise in the overall price level in the economy. It is caused by factors that directly affect the production costs of goods and services. Let's evaluate the given statements to determine their correctness.
Statement 1: It is inflation caused by an increase in prices of inputs like labor and raw material.
This statement is correct. Cost-push inflation occurs when there is an increase in the prices of inputs used in the production process. When the cost of labor or raw materials rises, businesses often pass on these increased costs to consumers by raising the prices of their products or services. This results in an overall increase in the price level in the economy.
Statement 2: This inflation is always a strong indicator of an expanding economy.
This statement is incorrect. Cost-push inflation is not always a strong indicator of an expanding economy. While an increase in the prices of inputs may result from an expanding economy, it can also occur due to other factors such as supply disruptions, changes in government policies, or external shocks.
Explanation:
Cost-push inflation is primarily driven by factors that increase the costs of production. Some common causes of cost-push inflation include:
- Increase in wages: If there is a significant increase in wages demanded by workers, businesses may have to increase the prices of their products to cover the higher labor costs.
- Increase in raw material prices: Higher prices of raw materials, such as oil, metals, or agricultural products, can lead to an increase in production costs, which may be passed on to consumers.
- Higher taxes or regulations: If the government imposes higher taxes or introduces stricter regulations on businesses, it can lead to increased production costs, which may result in cost-push inflation.
However, it is important to note that cost-push inflation is not always a sign of a growing economy. In some cases, it can be a sign of economic instability or inefficiencies. For example, if there is a supply shock or a disruption in the availability of key inputs, it can lead to an increase in prices without a corresponding increase in economic output.
In conclusion, statement 1 is correct as cost-push inflation is caused by an increase in prices of inputs like labor and raw materials. However, statement 2 is incorrect as cost-push inflation is not always a strong indicator of an expanding economy.
Cost-push inflation refers to a situation where there is an increase in the prices of inputs, such as labor and raw materials, leading to a rise in the overall price level in the economy. It is caused by factors that directly affect the production costs of goods and services. Let's evaluate the given statements to determine their correctness.
Statement 1: It is inflation caused by an increase in prices of inputs like labor and raw material.
This statement is correct. Cost-push inflation occurs when there is an increase in the prices of inputs used in the production process. When the cost of labor or raw materials rises, businesses often pass on these increased costs to consumers by raising the prices of their products or services. This results in an overall increase in the price level in the economy.
Statement 2: This inflation is always a strong indicator of an expanding economy.
This statement is incorrect. Cost-push inflation is not always a strong indicator of an expanding economy. While an increase in the prices of inputs may result from an expanding economy, it can also occur due to other factors such as supply disruptions, changes in government policies, or external shocks.
Explanation:
Cost-push inflation is primarily driven by factors that increase the costs of production. Some common causes of cost-push inflation include:
- Increase in wages: If there is a significant increase in wages demanded by workers, businesses may have to increase the prices of their products to cover the higher labor costs.
- Increase in raw material prices: Higher prices of raw materials, such as oil, metals, or agricultural products, can lead to an increase in production costs, which may be passed on to consumers.
- Higher taxes or regulations: If the government imposes higher taxes or introduces stricter regulations on businesses, it can lead to increased production costs, which may result in cost-push inflation.
However, it is important to note that cost-push inflation is not always a sign of a growing economy. In some cases, it can be a sign of economic instability or inefficiencies. For example, if there is a supply shock or a disruption in the availability of key inputs, it can lead to an increase in prices without a corresponding increase in economic output.
In conclusion, statement 1 is correct as cost-push inflation is caused by an increase in prices of inputs like labor and raw materials. However, statement 2 is incorrect as cost-push inflation is not always a strong indicator of an expanding economy.
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Consider the following statements with reference to the cost-push inflation: 1. It is inflation caused by an increase in prices of inputs like labor and raw material.2. This inflation is always a strong indicator of an expanding economy. Which of the statements given above is/are correct?a)1 onlyb)2 onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'A'. Can you explain this answer?
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