Question

18)

Economists agree that ________________ inflation reduces real output.

cost-push

demand-pull

push-pull

Answer 1

Cost-push inflation means prices have been "pushed up" by increases in the costs of any of the four factors of production—labor, capital, land, or entrepreneurship—when companies are already running at full production capacity. Companies cannot maintain profit margins by producing the same amounts of goods and services when their costs are higher and their productivity is maximized. The price for raw materials may also cause an increase in costs. This may occur because of a scarcity of raw materials, an increase in the cost of labor to produce the raw materials, or an increase in the cost of importing raw materials. Hence due to cost push inflation , there may be a chance that cost will rise and due to rise in cost, there will be a less demand in the economy . Hence output may fall due to cost push inflation .

Hence (A) part is a correct answer