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Consider the following statements with reference to the cost-push inflation:
- It is inflation caused by an increase in prices of inputs like labour and raw material.
- 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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Most Upvoted Answer
Consider the following statements with reference to the cost-push infl...
- Cost-push inflation is inflation caused by an increase in prices of inputs like labor, raw material, etc. The increased price of the factors of production leads to a decreased supply of these goods. While the demand remains constant, the prices of commodities increase causing a rise in the overall price level. This is in essence cost-push inflation. In this case, the overall price level increases due to higher costs of production which reflects in terms of increased prices of goods and commodities which majorly use these inputs. This is inflation triggered from the supply-side i.e. because of less supply. The opposite effect of this is called demand-pull inflation where higher demand triggers inflation. Hence statement 1 is correct
- Apart from the rise in prices of inputs, there could be other factors leading to supply-side inflation such as natural disasters, global pandemics such as COVID-19 or depletion of natural resources, monopoly, government regulation or taxation, change in exchange rates, etc. Generally, cost-push inflation may occur in the case of an inelastic demand curve where the demand cannot be easily adjusted according to rising prices.
- Recently the global pandemic of COVID-19 acted as a double-sided sword wherein India witnessed a cost-push as well as Demand-Pull inflation. The mass exodus of migrant labourers from industrial belts led to a decreased supply of manpower and thus leading to reduced production.
- Demand-pull inflation is an indicator of a growing economy as when consumers feel confident, they spend more and take on more debt. This leads to a steady increase in demand, which means higher prices. Hence statement 2 is not correct.
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Consider the following statements with reference to the cost-push infl...
Cost-Push Inflation
Cost-push inflation is a type of inflation that occurs when the cost of production increases, leading to a rise in prices of goods and services. Let's break down the two statements given in the question:
Statement 1: It is inflation caused by an increase in prices of inputs like labour and raw material.
This statement is correct. Cost-push inflation occurs when the cost of production for businesses increases due to factors such as rising wages, higher raw material costs, or increased taxes. As a result, producers pass on these increased costs to consumers in the form of higher prices, leading to inflation.
Statement 2: This inflation is always a strong indicator of an expanding economy.
This statement is incorrect. While cost-push inflation can sometimes be a sign of strong demand and a growing economy, it is not always the case. In some situations, cost-push inflation can be a result of external factors such as supply chain disruptions or geopolitical events, rather than a booming economy. Therefore, it is not always a reliable indicator of economic expansion.
In conclusion, statement 1 is correct as cost-push inflation is indeed caused by an increase in input prices, while statement 2 is incorrect as cost-push inflation is not always indicative of an expanding economy.
Cost-push inflation is a type of inflation that occurs when the cost of production increases, leading to a rise in prices of goods and services. Let's break down the two statements given in the question:
Statement 1: It is inflation caused by an increase in prices of inputs like labour and raw material.
This statement is correct. Cost-push inflation occurs when the cost of production for businesses increases due to factors such as rising wages, higher raw material costs, or increased taxes. As a result, producers pass on these increased costs to consumers in the form of higher prices, leading to inflation.
Statement 2: This inflation is always a strong indicator of an expanding economy.
This statement is incorrect. While cost-push inflation can sometimes be a sign of strong demand and a growing economy, it is not always the case. In some situations, cost-push inflation can be a result of external factors such as supply chain disruptions or geopolitical events, rather than a booming economy. Therefore, it is not always a reliable indicator of economic expansion.
In conclusion, statement 1 is correct as cost-push inflation is indeed caused by an increase in input prices, while statement 2 is incorrect as cost-push inflation is not always indicative of an expanding economy.
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Consider the following statements with reference to the cost-push inflation: It is inflation caused by an increase in prices of inputs like labour and raw material. 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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