ECONOMICS
INFLATION
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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demand-pull leads to lower real GDP and cost-push to higher real GDP
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demand-pull leads to higher real GDP and cost-push to lower real GDP
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demand-pull leads to greater unemployment and cost-push to lower unemployment
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a combination of the above, depending on the size of AD and SRAS shifts
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Detailed explanation-1: -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-2: -Hence the real GDP level rises above the full employment level with a simultaneous rise in the price level due to demand-pull inflation.
Detailed explanation-3: -Too little supply or too much demand can mean higher prices for everybody. Demand-pull inflation is when growing demand for goods or services meets insufficient supply, which drives prices higher.
Detailed explanation-4: -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-5: -Demand-pull inflation creates higher prices, because it shifts the demand curve to the right. More buyers want more products and services. If the supply doesn’t increase proportionally to demand, then buyers will pay higher prices for the limited supply.