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      Question

      Which of the following most precisely explains cost-push

      inflation?
      A Inflation driven by excess aggregate demand that outpaces productive capacity. Correct Answer Incorrect Answer
      B Inflation arising when rising input costs wages, energy, raw materials push up production costs which are passed on as higher prices. Correct Answer Incorrect Answer
      C Inflation created by excessive money supply expansion by the central bank. Correct Answer Incorrect Answer
      D Inflation from higher indirect taxes without any change in production costs. Correct Answer Incorrect Answer
      E Inflation from rising productivity and technological advancement. Correct Answer Incorrect Answer

      Solution

      Cost-push inflation occurs when the costs of production inputs  such as wages, crude oil, raw materials, or energy  rise, causing producers to pass these increased costs on to consumers in the form of higher prices. This pushes the aggregate supply curve leftward, raising the price level while output may fall (stagflation). Option A describes demand-pull inflation; Option C describes monetary inflation (Quantity Theory of Money); Option D could contribute to cost-push but is not the primary definition; Option E would typically reduce costs, not increase them.

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