Which of the following factors would be most likely to lead to cost-push inflation?

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BlackTom AI · Accepted Answer

Question restatement: Which of the following factors would be most likely to lead to cost-push inflation?

Option a: An increase in aggregate demand (AD).
- This would more likely produce demand-pull inflation, where higher overall demand pushes up prices as resources become scarce. It is not a pure cost increase issue, so it’s not the best fit for cost-push inflation.

Option b: An increase in transfer payments to households.
- Higher transfer payments boost household income and can raise AD through greater consumption. This affects demand in the economy rather than the cost structure of production, so it tends to drive demand-pull rather than cost-push inflation.

Option c: A decrease in the rates of business taxation.
- Lower business taxes can incentivize investment and expand supply, potentially shifting the AS curve rightward. This reduces costs in aggregate terms and does not create the cost shocks associated with cost-push inflation.

Option d: An increase in the global oil price.
- Oil is a key input in many production processes and transportation. A rise in oil prices raises production costs across multiple industries, shifting the short-run aggregate supply (SRAS) leftward and pushing prices up at every output level—this is a classic cost-push (supply-side) inflation scenario.

Summary interpretation: Among the listed factors, only the increase in global oil price directly elevates firms’ production costs, leading to cost-push inflation. The other options primarily affect demand conditions or supply in ways that do not center on rising production costs.

Which of the following factors would be most likely to lead to cost-push inflation?

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