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IAI Actuarial Core Principles · Business Economics · Impact of the macroeconomic environment on business

Prices in an economy have been rising because firms face higher imported crude oil and metal costs, while aggregate demand has not changed. Which type of inflation does this describe?

This is cost-push inflation. Rising prices of imported inputs such as oil and metals raise firms' costs and shift aggregate supply inwards, lifting the price level even though aggregate demand is unchanged, so demand-pull is not the cause.

  1. ADemand-pull inflation
  2. BCost-push inflationCorrect
  3. CImported deflation
  4. DHyperinflation caused by money creation
  5. Structural unemployment

Explanation

Higher input costs shift the aggregate supply curve inwards, raising prices while output falls. Demand-pull inflation would need a rightward shift in aggregate demand, which the question rules out. The other options describe different phenomena.

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