Paper 3 · Inflation and Money
Which government action would directly cause cost push inflation?
Araising indirect taxes such as value added tax and excise duty
Breducing the rate of income tax paid by workers and households
Clowering the rate of interest charged by the commercial banks
Dincreasing its own spending on roads, dams and public housing
Explanation: An indirect tax is added to the selling price of the good, so the price level rises immediately, and removing a subsidy has the same effect. The other three measures work by raising demand, which would cause demand pull inflation instead.
Derived from ZIMSEC Economics 4050/3 Paper 3, June 2023, Q10