| Consider the following statements about inflation: |
| 1. Cost push inflation occurs mainly due to increase in money supply in the market. |
| 2. Inflation has a positive relationship with the amount of Foreign Investment. |
| 3. Creditors lose and debtors gain due to inflation. |
| Which of the statements given above is / are correct? |
A) 1, and 3 only
B) 1 and 2 only
C) 2 and 3 only
D) All of the above
Correct Answer: C
Solution :
[c] Cost push inflation occurs when we experience rising prices due to higher costs of production and higher costs of raw materials. Cost push inflation is determined by supply side factors (cost-push inflation is different to demand- pull inflation which occurs due to aggregate demand growing faster than aggregate supply) Cost push inflation could be caused by a rise in oil prices or other raw materials.
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