Demand pull inflation and cost-push inflation, Microeconomics

Assignment Help:

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.


Related Discussions:- Demand pull inflation and cost-push inflation

Income elasticity of demand, what are the practical importance of income el...

what are the practical importance of income elasticity of demand?

Price elasticities of demand, how to compute the price of a laptop increase...

how to compute the price of a laptop increase of 20% and there is a 40% drop in the aquantity demanded

Compute marginal cost and average cost, Fill in the column of marginal prod...

Fill in the column of marginal products. What pattern do you see? How might you explain it? b. A worker costs $30 per day and the ''Firm has fixed costs of $10. Use this informat

Pure monopoly, Pure Monopoly: Pure monopoly examined the market struct...

Pure Monopoly: Pure monopoly examined the market structure that is generally regarded as the polar opposite of perfect competition – i.e. the monopoly model. Like the perfect

Assignment, what is the theory of second best ? prove the theorem with the ...

what is the theory of second best ? prove the theorem with the help of a diagram .

Define the concepts price elasticity of demand, Question 1: Define the ...

Question 1: Define the concepts price elasticity of demand, income elasticity of demand and cross elasticity of demand and explain how these concepts can be useful to the man

Mercantilism, Mercantilism:It is an economic theory from pre-capitalist tim...

Mercantilism:It is an economic theory from pre-capitalist times which held that a country's prosperity depended on its ability to produce large and persistent surpluses in its fore

Illustrate about the elasticity of substitution, Illustrate about the elast...

Illustrate about the elasticity of substitution. The Elasticity of Substitution: The technical substitution’s marginal rate measures the slope of an isoquant. As well the el

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd