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    Question

    In the case of cost-push inflation, other things being equal:

    A both the inflation rate and the unemployment rate rise at the same time Correct Answer Incorrect Answer
    B the unemployment rate rises but the inflation rate falls Correct Answer Incorrect Answer
    C the inflation rate rises but the unemployment rate falls Correct Answer Incorrect Answer
    D both the inflation rate and the unemployment rate fall Correct Answer Incorrect Answer
    E None of the above Correct Answer Incorrect Answer

    Solution

    In the case of cost-push inflation, other things being equal both the inflation rate and unemployment rises at the same time. This is because cost push inflation causes aggregate supply curve to shift upwards so unemployment will rise with fall in output. Also, prices will rise.

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