ECONOMICS (CBSE/UGC NET)

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: -Economists distinguish between two types of inflation: Demand-Pull Inflation and Cost-Push Inflation. Both types of inflation cause an increase in the overall price level within an economy.

Detailed explanation-3: -Demand-pull inflation is a type of inflation that is caused when there is an increase in consumer demand for goods and services. This causes prices to go up as businesses try to meet the increased demand because of a lack of needed supply. This is historically the most common cause of inflation.

Detailed explanation-4: -In fact, excess demand and cost-push forces operate simultaneously and interdependently in an inflationary process. Thus inflation is mixed demand-pull and cost-push when price level changes reflect upward shifts in both aggregate demand and supply functions.

Detailed explanation-5: -Cost-push inflation occurs when supply costs rise or supply levels fall. Either will drive up prices-as long as demand remains the same. Shortages or cost increases in labor, raw materials, and capital goods create cost-push inflation. These components of supply are also part of the four factors of production.