Distinguish between demand-pull inflation and cost-push inflation, with the main causes of each.

Exercises · Q10

Q. Distinguish between demand-pull inflation and cost-push inflation, with the main causes of each.

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Basis	Demand-Pull Inflation	Cost-Push Inflation
Origin	Aggregate demand exceeds aggregate supply at existing prices	Cost of production rises, independent of demand
Popular description	'Too much money chasing too few goods'	'Rising costs pushing prices up'
Main causes	Expansion of money supply/credit, higher government spending, rising exports, population and income growth	Higher wages (wage-price spiral), dearer raw materials/imports, higher indirect taxes
Where it starts	The demand (spending) side of the economy	The supply (production) side of the economy

Q.Distinguish between demand-pull inflation and cost-push inflation, with the main causes of each.