Demand pull inflation and cost-push inflation, Microeconomics

Demand Pull Inflation and Cost-Push Inflation:

Demand Pull Inflation:It describes a sustained increase in the general price level that is caused by a permanent increase in nominal aggregate demand. Simply, it can be viewed as an inflation that occurs as a result of increase in aggregate demand.

Cost Push or Supply Inflation: It is a situation where the process of increasing price level is caused by increasing costs of production which push up prices. Cost push inflation is also referred to as supply inflation. Price level in this case increases due to an increase in business costs. These increases in prices occur in the face of high unemployment and slacken resource utilization. The increase in cost of production causes supply of final goods and services to fall.This creates excess aggregate demand and a new equilibrium is attained at a higher level.
 
Two points to note about Demand Pull and Cost Push Inflation.

(i) It must be used noted that in both processes, inflation is caused by excess demand. It is the cause of this excess demand that distinguishes one from the other.

(ii) Demand pull inflation may cause an increase in output up to the potential output level whilst cost push inflation causes supply (output) to fall and the economy declines further away from potential output.

Posted Date: 1/3/2013 12:27:46 AM | Location : United States







Related Discussions:- Demand pull inflation and cost-push inflation, Assignment Help, Ask Question on Demand pull inflation and cost-push inflation, Get Answer, Expert's Help, Demand pull inflation and cost-push inflation Discussions

Write discussion on Demand pull inflation and cost-push inflation
Your posts are moderated
Related Questions
Average Product (AP) of a Factor: The productivity of a factor is often seen in terms of its average contribution. Although not very important in the theoretical discussions,

BACKGROUND:  You have been promoted to the position of Vice President in a business consulting firm.  This firm provides business consulting to a variety of businesses.   The presi

Market equilibrium happens where supply equals demand (supply curve intersects demand curve).   An equilibrium implies that there is no force that will cause further changes in pri

Term Paper: A final paper that focuses on the course content, applied in the setting of your current or past employer, will be due in Module. In this paper you will focus on the fo

Hi, My Econ prof gives out a sample exam two days before we take the real exam. If I were to submit the sample exam to you, how long would it take to get the answers back?

Briefly explain the main macroeconomic objectives of governments. Definition of macroeconomic issues Growth a)      Enhance in national income per unit of time, a

Draw a diagram to show the type of bond between two flourine atom

when the demand function is 2q-24+3p=0,find marginal revenue when q=3

What is checkable bank deposits?

application of indifference curve analysis to the problem of exchange