Cost-push inflation from rising wages

Steps:

• Recall inflation types: demand-pull (excess demand) or cost-push (rising production costs).
• Evaluate each option's impact on aggregate demand or supply.
• Identify options that reduce demand (deflationary) versus those increasing costs (inflationary).
• Select the one shifting supply curve leftward, raising prices.

Why D is correct:

• Increased trade union power boosts wage demands, raising production costs and causing cost-push inflation per the Phillips curve relationship.

Why the others are wrong:

• A: Reduces exports, lowering aggregate demand and curbing inflation.
• B: Cuts government spending, decreasing aggregate demand and easing price pressures.
• C: Higher interest rates reduce borrowing and spending, dampening demand-pull inflation.

Final answer: D