What type of government response is best suited to address cost-push inflation?
A. Raising consumer taxes
B. Increasing interest rates aggressively
C. Supporting production and removing supply bottlenecks
D. Giving more loans to consumers
Answer (1)
The correct answer is C. Cost-push inflation is caused by rising production costs—like expensive fuel, raw materials, or wages. To solve this, governments can support producers. For example, during fuel price hikes in the Philippines, the government gave fuel subsidies to jeepney drivers and truckers to prevent fare hikes and delivery delays. Removing supply chain problems or investing in energy alternatives can also lower production costs and ease inflation without hurting consumers.
