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

Question

BlackTom AI · Accepted Answer

Cost-push inflation arises when firms face higher production costs that reduce short-run aggregate supply (SRAS), shifting the SRAS curve leftward and producing a higher price level (inflation) often accompanied by lower real output — a pattern called stagflation.

1) Relevant concepts
- Cost-push inflation: inflation caused by increases in firms’ input costs (wages, raw materials, energy) that raise per-unit production costs and lead producers to charge higher prices.  
- Aggregate supply and demand framework: a leftward shift in SRAS increases the price level; an increase in AD raises the price level for demand-pull inflation.  
- Oil as a key input: global oil price is a broad cost component because oil/energy are inputs across many industries, so higher oil prices raise many firms’ costs.

2) Step-by-step reasoning
Step 1: Identify which option changes firms’ costs directly.  
Step 2: Determine impact on SRAS or AD. If firms’ costs rise, SRAS shifts left → cost-push inflation. If households’ income or taxes change, AD shifts → demand-pull effects.  
Step 3: Apply to each option (see next section). For option d, an increase in global oil price raises fuel and energy costs across the economy → production costs rise → SRAS shifts left → price level increases (cost-push inflation), possibly with reduced output.

3) Calculations
No numerical calculation is required; reasoning is graphical/qualitative using SRAS/AD shifts.

4) Why the correct answer is correct
An increase in the global oil price directly raises widespread production and transportation costs, forcing firms to raise prices to cover higher costs. This is the textbook driver of cost-push inflation.

5) Why other options are incorrect
- a) A decrease in business taxation lowers firms’ costs (or increases after-tax profits), tending to increase supply or investment, not cause cost-push inflation.  
- b) Increasing transfer payments raises household income and consumption → aggregate demand rises, producing demand-pull inflation, not cost-push.  
- c) An increase in AD raises the price level via demand-pull mechanisms; it is not a cost-driven (supply-side) inflation.

Conclusion: Therefore the best choice is d. An increase in the global oil price (option d) most likely leads to cost-push inflation, which matches the provided answer.

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

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