Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It leads to an increase in tariffs to protect domestic producers from rising costs.
B
It encourages the reduction of tariffs to boost imports and lower prices.
C
It has no effect on trade policy decisions.
D
It results in the elimination of all trade tariffs.
Understanding the Answer
Let's break down why this is correct
Answer
Cost-push inflation happens when the costs of producing goods increase, which can lead to higher prices for consumers. When this occurs, governments might consider adjusting trade tariffs, which are taxes on imported goods, to protect local businesses from foreign competition that could undercut prices. For example, if the price of oil rises sharply and affects transportation costs, a government might raise tariffs on imported oil to encourage people to buy domestic alternatives. This can help stabilize local prices but may also lead to higher prices for consumers, as businesses pass on the additional costs. Therefore, governments need to carefully balance protecting local industries with keeping prices reasonable for consumers.
Detailed Explanation
When costs rise for producers, the government may increase tariffs. Other options are incorrect because Some might think lowering tariffs will help by allowing cheaper imports; It's a common belief that inflation doesn't change trade policies.
Key Concepts
Cost-push inflation
Government policy
Topic
Inflation and Trade Effects
Difficulty
medium level question
Cognitive Level
understand
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