Q. With reference to Bottleneck Inflation, which of the following statements is most accurate?

[A] It is caused by an overall surge in consumer spending across all sectors of the economy.

[B] It arises due to supply constraints or shortages in specific sectors, which then cascade across the economy.

[C] It is a state of simultaneous high inflation and high unemployment.

[D] It is a slow and predictable rise in prices, often seen in developed economies.

Answer: B
Notes:

Explanation:

  • Bottleneck inflation occurs when the supply chain is disrupted, or a specific sector’s production capacity is strained, leading to shortages. These shortages in key inputs or goods then push up prices not just in that sector but throughout the economy. For example, a shortage of microchips can affect the price of cars, computers, and appliances.
  • A is the definition of demand-pull inflation.
  • C is the definition of stagflation.
  • D is the definition of creeping or low inflation.
Blog
Academy
Community