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
discuss the implications of various market structures(competitive and non-competitive) for price determination

what is the theory of second best?prove the theorm with the help of diagram?

illustrate and discuss the implications of various markets structures(competitive and non-competitive) for price dertimation

DEMOGRAPHIC PROFILE: A demographic profile of India can be prepared out of the data collected by the office of the Registrar General of India who is the responsible authority

-1- ASSIGNMENT #1 The demand function for Product X is given by: Qdx = 80- 2Px- 0.05P²x -0.2Py + 4Pz + 0.01I+ 2A Where: Px Price of good X $120.00 Py Price of related good y $100.0

Q. What do you meant by Payroll Tax? Payroll Tax:A tax which is levied on current employment or payrolls (collected either as a fixed amount per employee or as a percentage of

Suppose that a firm’s production function is given by Q=30L-3L2, where L is labor input and Q is the output. a) Derive and draw the firm’s demand for labor while the firm’s produc

why can methane not be prepared by this reaction

In year one, suppose the federal government has no national debt and spends $100 billion, while raising only $50 billion in taxes. The U.S. Treasury will issue $ billion of governm

explain about integrability problem