Question

Explain the following:

M1 and M2:

Demand pull inflation:

cost push inflation:

Answer 1

1.M1- M1 is a type of money which includes all the currencies that can be easily liquidated like physical currency ,coin, Traveller cheque ,checkable deposits etc

It is a type of money which is used basically as a medium of exchange.

M2 is a money type which is also called near money because it includes M1 as well as saving deposit ,mutual fund ,money market securities etc

It is generally not considered suitable as medium of exchange.

2. It is very common type of inflation and due to increase in aggregate demand and supply do not matches the demand which leads to demand pull inflation

It comes under the keynesian economics .

In this type of inflation generally GDP Rises and unemployment Falls.

3. This type of inflation is from the suppliers side when there is a increase in the the cost of production which resulted in Limited supply .

The best example of this type of inflation can be seen in the year of 1970 when the oil and petroleum exporting countries(OPEC) decided to to decrease the Global supply to boost the price levels