In case of cost-push inflation :
Supply curve shifts to the left
Cost-push inflation is a leftward shift of the aggregate supply curve — option 3.
The two kinds of inflation. Inflation can begin on either side of the market, and which side it begins on decides both the diagram and the policy response :
| Demand-pull inflation | Cost-push inflation | |
|---|---|---|
| Cause | Aggregate demand rises — more money, higher government spending, easy credit, export boom | Cost of production rises — wages, imported oil, raw materials, indirect taxes |
| Curve that moves | Aggregate demand curve shifts right | Aggregate supply curve shifts left |
| Price level | Rises | Rises |
| Output and employment | Rise | Fall |
| Popular name | “Too much money chasing too few goods” | Stagflation when it persists |
Why the supply curve moves left. The supply curve shows how much firms will produce at each price. If the cost of producing every unit rises, firms will supply less at any given price — or equivalently will require a higher price to supply the same quantity. Either way the whole curve moves to the left, and the new intersection with an unchanged demand curve lies at a higher price and a lower quantity.
Why the distinction matters for policy. Demand-pull inflation can be treated by tightening monetary or fiscal policy, since the problem is excess demand. Cost-push inflation cannot: contracting demand would reduce output and employment further, deepening the recession while doing little about the cost shock. That is the dilemma of stagflation, which is exactly what the industrial economies faced after the oil shocks of 1973 and 1979 — rising prices and falling output at the same time, a combination the simple Phillips curve had said was impossible.
Typical triggers of a cost-push : a jump in crude oil prices, a large negotiated wage increase not matched by productivity, a depreciation of the currency that raises the price of imported inputs, a rise in indirect taxes, or a crop failure that raises food prices.
Hence, the answer is supply curve shifts to the left.
Similar Questions
If two goods are perfect substitutes for each other, Cross elasticity of demand between them will be :
Which of the following statements are correct ?
A. Gross Domestic Product at Market Price = Gross National Product at Market Price + Net Factor Income From Abroad
B. Gross Domestic Product at factor Cost = Gross Domestic Product at Market Price – Indirect Taxes + Subsidies
C. Net Domestic Product at Market Price = Net National Product at Market Price – Net Factor Income From Abroad
D. Gross Domestic Product at Market Price = Net Domestic Product at Market Price + Depreciation
E. Net National Product at Market Price = Gross Domestic Product at Market Price + Net Factor Income From Abroad + Depreciation
Choose the correct answer from the options given below :
Match List - I with List - II.
List - I
(Term)List - II
(Description)A. Law of Diminishing Marginal Utility I. On each successive unit consumed, the utility derived goes on falling B. Consumer Surplus II. The rate at which consumer is ready to compromise goods X for another goods Y, holding the level of satisfaction constant C. Marginal Rate of Substitution III. Difference between what a consumer is ready to pay for a commodity and what he actually pays for it D. Budget Line IV. All those combinations of two goods which consumer can buy spending his given money income and their given prices. Choose the correct answer from the options given below :
Match the items of the List - I with those of the List - II and indicate the correct code :
List - I List - II (a) Positive income elasticity (i) Substitute goods (b) Negative income elasticity (ii) Complementary goods (c) Positive cross elasticity (iii) Inferior goods (d) Negative cross elasticity (iv) Superior goods Code :
Match the items of the List - I with those of List - II and suggest the correct code from the following :
List - I List - II (a) GDP (i) National income (b) GDP at factor cost (ii) NDP plus Net flow of income from abroad (c) NNP at factor cost (iii) Money value of final goods and services produced (d) NNP (iv) Total gross value added by all enterprises in the economy Code :
Who among the following is known for application of Psychology to industry and management ?
If the demand for using the Noida express way is given by :
Q = 40,000 – 2500P
Where Q is the number of users (vehicles) and P is the amount of toll collected per unit who uses the express way. In light of this information which of the following is true :
The demand function for commodity X, is \( Q_D = 300 - 20P \); where P is the price in rupees per unit and \( Q_D \) is the quantity demanded in units per period. Which of the following is the price level at which total revenue of a firm facing this demand function is maximised?
Demand policies targeted to reduce the unemployment become ineffective in presence of the following :
For an economy which consist of single automobile maker and that in year 2014, 30,000 vehicles are produced with an average price of ₹ 5 lakh. For this economy what would be the increase in the nominal GDP for 2015 compared with 2014 with the 4% greater automobile production and 8% inflation.
Important Questions from Miscellaneous
The ration of the number of girls and boys in a school is 8 : 7. If the percentage increase in the number of girls and boys is 10% and 20% respectively, what will be the new ratio?
The cheapest means of transport is:
The property of Catenation is most readily predominant in:
Which newspaper edited by Bal Gangadhar Tilak, was one of the strongest critics of the British rule?
Which of the following is NOT a cause of food and water contamination?
