Question

Q9) Recently during the floods in Chennai, a bottle of mineral water was sold at RS 200.This situation is a classic example of

• A. a) Demand pull inflation
• B. b) Cost push inflation
• C. c) Both
• D. d) None

Answer 1

The correct option is B

b) Cost push inflation

Ans: B
Explanation: Demand-pull inflation is asserted to arise when aggregate demand in an economy outpaces aggregate supply. It involves inflation rising as real gross domestic product rises and unemployment falls

Cost-push inflation develops because the higher costs of production factors decreases in aggregate supply (the amount of total production) in the economy. Ans also because there are fewer goods being produced (supply weakens) and demand for these goods remains consistent, the prices of finished goods increase (inflation).