What is cost-push inflation? What factors can start a cost-push inflation? What must the Fed's response...

What is cost-push inflation?

What factors can start a cost-push inflation?

What must the Fed's response be for the inflation to continue?

Solutions

Expert Solution

Answer 1: The rise in price level due to increase in the cost of production is called as Cost Push Inflation.In simple words Cost Push Inflation arises due to increase in price of inputs like higher wages of labour,higher price of raw materials etc.

Answer 2 : Following factors can start a Cost Push Inflation :

a)A very high wage rate can increase in the labour cost of the firm

b)Higher tax rate like excise duties and sales tax can increase in cost of production

c)Rise in raw material cost can increase the cost of production

d) Scarcity of resources ,factors of production can affect the cost of production ,etc

Answer 3)Fed's response to inflation:

a)Contractionary monetory policy

b)Proper control on liquidity

c)Balanced wage and price control

d)Proper reserve requirement ratio

e)Controlled government expenditures

f) Controlled exchange rate policy,etc

Rahul Sunny answered 1 year ago

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