ECONOMICS
INFLATION
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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demand-push inflation
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cost-push inflation
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demand-pull inflation
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cost-pull inflation
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Detailed explanation-1: -Demand-pull inflation is when there is an increase in aggregate demand, and the supply remains the same or decreases. When supply cannot meet growing demand, prices for goods and services are pulled higher.
Detailed explanation-2: -Demand-pull inflation causes upward pressure on prices due to shortages in supply, a condition that economists describe as “too many dollars chasing too few goods.” An increase in aggregate demand can also lead to this type of inflation.
Detailed explanation-3: -How demand-pull inflation occurs. If aggregate demand is rising at 4%, but productive capacity is only rising at 2.5%; firms will see demand outstripping supply. Therefore, they respond by increasing prices. Also, as firms produce more, they employ more workers, creating a rise in employment and fall in unemployment.
Detailed explanation-4: -Aggregate demand increases with increase in investment.