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

Health Reform, Healthcare Reform is currently in the news almost every day....

Healthcare Reform is currently in the news almost every day. The current approach proposes a government sponsored health insurance “market” to help control costs and make healthcar

Elasticity, what are the uses of cross elasticity quantity in demand/

what are the uses of cross elasticity quantity in demand/

Statistical or analytical methods of demand forecasting, Statistical metho...

Statistical methods are considered to be superior techniques of demand estimation because: a. The element of subjectivity in this method is minimum, b. Methods of es

Primary inputs, Normal 0 false false false EN-IN X-NO...

Normal 0 false false false EN-IN X-NONE X-NONE MicrosoftInternetExplorer4

Determinants of private demand - waiting-time for employment, Determinants ...

Determinants of Private Demand - Waiting-Time for Employment ‘Waiting time’ for employment is another important factor. The waiting time varies from course to course. For inst

Cost, Relatiön between TC ,TFC and TVC

Relatiön between TC ,TFC and TVC

Ppf, You should find two articles, of which one should report on changes th...

You should find two articles, of which one should report on changes that make farming more productive (more food per acre, hour or other unit of inputs), and another about changes

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