Inflation and Stagflation

Question 10 • (Galli)WCA 2221 Civics/Economics 1st nine weeks 26-27

Which scenario is an example of cost-push inflation?

Answer

Consumers have more money to buy cars, and the prices of cars and car parts rise as a result.

An increase in workers’ wages raises the production cost of cars, and car prices rise as a result.

The demand for cars falls as consumers have less disposable income, and car prices fall as a result.

A government bailout helps car manufacturers lower their costs, and car prices fall as a result.

Explanation

Cost-push inflation occurs when higher costs of production lead businesses to raise prices. In choice B, higher wages increase the cost of making cars, so car prices rise. Choice A describes demand-pull inflation, where increased consumer spending raises prices.

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