Cost-push inflation from rising production costs

Steps:

• Define cost-push inflation as price increases due to higher input costs shifting the aggregate supply curve leftward.
• Identify causes: rises in wages, raw materials, or imported goods that elevate business expenses.
• Evaluate options: check which directly raises production costs without affecting demand.
• Select the option linking to import price hikes as a key input cost driver.

Why C is correct:

• Cost-push inflation stems from elevated production costs; higher import prices directly increase costs of raw materials or components, per the aggregate supply model.

Why the others are wrong:

• A: Exchange rate increase (appreciation) lowers import prices, reducing costs and curbing inflation.
• B: Money supply growth boosts demand, causing demand-pull inflation, not cost-push.
• D: Income tax rise reduces consumer spending, potentially lowering demand and easing inflationary pressure.

Final answer: C