ECONOMICS (CBSE/UGC NET)

ECONOMICS

BUSINESS CYCLES

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
The difference between demand-pull inflation and cost-push inflation is that
A
demand-pull inflation is caused by a drop in aggregate demand and cost-push inflation is caused by a rise in aggregate supply.
B
demand-pull inflation is caused by a drop in aggregate supply and cost-push inflation is caused by a rise in aggregate demand.
C
demand-pull inflation is caused by a rise in aggregate supply and cost-push-inflation is caused by a drop in aggregate demand.
D
demand-pull inflation is caused by a rise in aggregate demand and cost-push inflation is caused by a drop in aggregate supply.
Explanation: 

Detailed explanation-1: -Demand pull inflation arises when the aggregate demand becomes more than the aggregate supply in the economy. Cost pull inflation occurs when aggregate demand remains the same but there is a decline in aggregate supply due to external factors that cause rise in price levels.

Detailed explanation-2: -Demand-pull inflation includes times when an increase in demand is so great that production can’t keep up, which typically results in higher prices. In short, cost-push inflation is driven by supply costs while demand-pull inflation is driven by consumer demand-while both lead to higher prices passed onto consumers.

Detailed explanation-3: -Demand-pull inflation happens when an increased money supply causes demand to rise faster than supply. Cost-push occurs when supply shocks cause prices to rise. Built-in inflation is also called a wage-price spiral, because wages and prices both rise to compensate for the other, creating a positive feedback loop.

Detailed explanation-4: -Demand-pull inflation is driven by consumers, while cost-push inflation is driven by producers.

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