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JAMB Economics 2009 Question 31

Question 31

Money and Inflation

Cost-push inflation occurs when

  1. A.production cost is high
  2. B.factor prices decrease
  3. C.there is too much money in circulation
  4. D.government embarks on deficit financing
Show the answer and explanation

Answer: A (production cost is high)

Explanation

When production costs rise, firms raise their prices to protect profits, pushing up the general price level.