distinguish between demand-pull and cost-push inflation.

Ans.) a.) Inflation may be defined as a persistent ontogeny in the fairish price take of the scrimping. The causes of ostentatiousness can be primarily divided into twain types , Demand-pull and Cost-push inflation. Though inflation does not distinctively relate to a particular type, and both the types occur in cycles known as inflationary spiral, their differences are important to ascertain which policies are to be implemented to mitigate inflation.
Demand-pull inflation is the type of inflation which is the result of an increase in meld necessity. Aggregate call for increases, due to changes in any of the components. For example, if national incomes rise, consumption increases; or if foreign incomes increase, the scrimpings exports are more in demand.
There are two cases of aggregate demand, one is when the economy is approaching amply employment (Shown by Fig.1) and the other, when the economy is at the full employment direct (Shown by Fig.2). When aggregate demand increases, firms try to increase output to adopt the rising demand. In the first case, when aggregate demand rises, it results with an increase in amount price level (From P1 to P2, Fig.1) and an increase in real output, because when the economy is approaching full employment, there is spare capacity to meet the demand.



However, when the economy is operating at full employment (Y=FE) level and the economys productive potential has reached its peak, the single way to curb the surplus demand, is by raising the average price level (From P1 to P2, Fig.2). Any increase in aggregate demand further on, would be purely inflationary.














Fig.1. Demand-pull inflation while Fig.2. Demand-pull inflation at full
approaching full employment. employment.

On the other hand, Cost-push inflation refers to the type of inflation caused by an increase in cost of...If you want to get a full essay, order it on our website: Ordercustompaper.com



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