Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It shifts the Phillips Curve to the left
B
It shifts the Phillips Curve to the right
C
It has no effect on the Phillips Curve
D
It makes the relationship linear
Understanding the Answer
Let's break down why this is correct
Answer
Cost-push inflation occurs when the costs of production for businesses rise, leading them to increase prices for consumers. This type of inflation can shift the Phillips Curve, which originally suggests that lower unemployment comes with higher inflation. When costs rise, businesses may reduce their workforce to manage expenses, causing unemployment to increase even as inflation rises. For example, if the price of oil skyrockets, transportation and manufacturing costs go up, leading to higher prices for goods and potentially more layoffs. This means that instead of the usual trade-off where lower unemployment leads to higher inflation, both inflation and unemployment can rise together, complicating economic policy.
Detailed Explanation
Cost-push inflation happens when prices rise due to increased costs for businesses. Other options are incorrect because Some might think that higher costs would lower inflation; It's a common mistake to think nothing changes.
Key Concepts
inflation
cost-push inflation
Topic
Phillips Curve Insights
Difficulty
medium level question
Cognitive Level
understand
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