Question

Of the following, which is a cause of cost push inflation?

• A. Increased consumption expenditure
• B. A reduction in taxation
• C. Increase in demand
• D. Increase in wages and salaries.

Answer 1

The correct option is D Increase in wages and salaries.

Cost-push inflation is an economic situation where the general price level in the economy rises for all the relevant goods owing to increase in their cost of production that results in some market change for the real output for those goods. Therefore, increase in wages and salaries results in increased cost of production that leads to inflation.