Inflation Concepts: Cost-Push and Demand-Pull

These flashcards cover the definitions and key concepts related to cost-push and demand-pull inflation, including their causes and impacts.

Inflation

A sustained increase in the general price level of goods and services in an economy over a period of time.

Demand-Pull Inflation

Occurs when overall price levels rise due to an increase in aggregate demand not matched by aggregate supply.

Causes of Demand-Pull Inflation

Increased consumer spending resulting from higher disposable income or lower interest rates.

AD Curve Shift

A rightward shift of the AD curve from AD1 to AD2 indicates an increase in aggregate demand and leads to demand-pull inflation.

Cost-Push Inflation

Occurs when overall price levels rise due to increases in the cost of production.

Causes of Cost-Push Inflation

Increases in wages or raw material costs, making it more expensive for firms to produce goods and services.

AS Curve Shift

A leftward shift of the AS curve from SRAS1 to SRAS2 indicates a decrease in aggregate supply and leads to cost-push inflation.

Impact of Cost-Push Inflation

Can be more damaging, especially if caused by unpredictable spikes in production costs, leading to higher costs across sectors and reduced output.