Economic Awareness - Sectors of Indian Economy
Which of the following best explains why cost-push inflation can lead to stagflation?
Which of the following best explains why cost-push inflation can lead to stagflation?
hard Q10 of 15
Step-by-Step Solution
Step 1: Understand cost-push inflation and stagflation link
Cost-push inflation raises production costs, leading to higher prices, reduced output, and increased unemployment, which are components of stagflation.Step 2: Analyze options
Only the option describing rising prices with reduced output and higher unemployment explains how cost-push inflation leads to stagflation. Increasing aggregate demand reduces unemployment, which is not stagflation. Excess money supply causes demand-pull inflation. Technological advancements usually reduce costs.Step 3: Explain why other options are incorrect
Increasing aggregate demand and reducing unemployment contradict stagflation's unemployment feature. Excess money supply is unrelated to cost-push inflation. Technological progress improves productivity, not inflation.Final Answer:
Because it causes rising prices along with reduced output and higher unemployment → Option BQuick Check:
Cost-push leads to stagflation via rising prices, reduced output, higher unemployment ✅
Quick Trick: Stagflation = cost-push inflation + unemployment + stagnant growth.
Common Mistakes:
- Confusing demand-pull inflation effects with cost-push inflation.
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