SQA National 5 Economics Practice Exam

Cost-push inflation occurs specifically when the costs of production for goods and services rise, which then prompts producers to increase prices to maintain profit margins. This can happen due to various factors, such as an increase in the prices of raw materials, wages, or any other expenses associated with the production process.

In this scenario, businesses faced with higher costs may find it necessary to pass those costs onto consumers, resulting in an overall increase in the price level of goods and services. This type of inflation highlights how supply-side constraints can lead to rising prices rather than a stimulus from demand-side factors.

In contrast, the other scenarios focus on different economic influences, such as demand-side pressure or changes in government spending, which are more related to demand-pull inflation or other economic conditions rather than the specific mechanics of cost-push inflation.