Answer: (1) Only one statement is correct
Explanation:
Let's analyze each statement in relation to cost-push inflation:
A. Increases real wages and boosts consumer purchasing power.
- Incorrect. Cost-push inflation occurs when production costs rise (e.g., due to higher wages, raw material costs), leading to increased prices of goods and services. This often results in a reduction of real wages (purchasing power) rather than an increase, as the cost of living rises faster than wages.
B. Encourages investment and stimulates economic growth.
- Incorrect. Cost-push inflation tends to reduce investment and economic growth because higher production costs lead to lower profits, discouraging investment. Additionally, consumers may cut back on spending due to higher prices.
C. Leads to higher unemployment rates and reduced consumer spending.
- Correct. This is a common consequence of cost-push inflation. As costs rise, businesses may cut back on production and employment, leading to higher unemployment rates. The reduction in consumer purchasing power also leads to lower consumer spending.
D. Decreases government spending and reduces inflationary pressures.
- Incorrect. Cost-push inflation does not typically decrease government spending. In fact, governments may increase spending to counteract the economic slowdown. Moreover, cost-push inflation does not necessarily reduce inflationary pressures; it actually contributes to them.
Conclusion:
- C is the only correct statement. Therefore, the correct answer is (1) Only one statement is correct.
