What is the difference between cost-push and demand-pull inflation?

Expert Solution

We know that inflation is the rise in the general price level of all the goods and services in an economy.
We can categorise inflation into two : Demand pull inflation and cost push Inflation. The main difference Between the two are:

1. Demand pull inflation :

A demand pull inflation refers to the price inflation or rise in prices of goods and services caused to increased demand in the ecomomy.
As this type of inflation occurs due to the excess demand, it is also termed as demand side inflation.
It occurs when the aggregate demand exceeds the aggregate supply in the economy.

2. Cost pull inflation :

A cost push inflation refers to the price inflation or rise in prices of goods and services caused to increase in the prices of raw materials, labour, machineries etc which can increase the cost of production.
This type of inflation is also termed as supply side inflation.
It occurs when there is a fall in aggregate supply due to the increased cost of production even when the aggregate demand remains the same.

Rahul Sunny answered 1 year ago

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