Whats the right answer
Which of the following will likely lead to cost-push inflation? Select the two correct answers.(1 point)
Responses
An ongoing war causes government spending to nearly double in quantity.
An ongoing war causes government spending to nearly double in quantity.
An increase in the price of oil has reduced supply of all goods and services that use oil as an input.
An increase in the price of oil has reduced supply of all goods and services that use oil as an input.
Exports increase dramatically after a relative drop in price.
Exports increase dramatically after a relative drop in price.
A tornado destroys factories and lowers supply levels throughout the economy.
A tornado destroys factories and lowers supply levels throughout the economy.
Consumers become more comfortable with debt, increasing their spending as they take on more loans.
The two correct answers that are likely to lead to cost-push inflation are:
1. An increase in the price of oil has reduced supply of all goods and services that use oil as an input.
2. A tornado destroys factories and lowers supply levels throughout the economy.
The two correct answers that are likely to lead to cost-push inflation are:
1. An increase in the price of oil has reduced supply of all goods and services that use oil as an input. This is because when the price of oil increases, it becomes more expensive to produce and transport goods, leading to higher production costs and potentially higher prices for consumers.
2. A tornado destroys factories and lowers supply levels throughout the economy. In this case, the destruction caused by the tornado leads to a decrease in the supply of goods, which can result in higher prices as demand may still remain the same or even increase.
The other options mentioned, such as an ongoing war causing government spending to nearly double, exports increasing after a relative drop in price, or consumers becoming more comfortable with debt and increasing their spending, are not directly related to cost-push inflation.
The two options that are likely to lead to cost-push inflation are:
1. An increase in the price of oil has reduced the supply of all goods and services that use oil as an input. When the price of oil increases, it becomes more expensive for businesses to produce and transport their products. As a result, the costs of production increase, leading to higher prices for goods and services in the economy.
2. A tornado destroys factories and lowers supply levels throughout the economy. When factories are destroyed or damaged by natural disasters like tornadoes, the production capacity of the economy decreases. This reduction in supply can lead to higher prices as there is less availability of goods and services.
To arrive at this answer, you need to understand the concept of cost-push inflation. Cost-push inflation occurs when there is an increase in the production costs of goods and services, which then leads to higher prices. It is caused by factors such as increases in the prices of inputs (like oil) used in production or disruptions to the supply chain (like a tornado).
By analyzing the given options, you can identify the ones that are most likely to result in increased production costs and reduced supply, which are indicative of cost-push inflation.