COST PUSH AND DEMAND PULL

Question 1

What is demand pull inflation

Answer 1

Demand pull inflation is a type of inflation when high levels of demand are caused by high levels of aggregate expenditure. This can occur when there is excess demand for the resources available at a time. High levels of demand for limited resources implies competition for these resources, forcing prices to rise.
When demand for goods and services exceed the supply of g&s

Question 2

What can cause demand pull inflation

Answer 2

high levels of consumer spending

increasing wages that increases household spending

high levels of borrowing that increases household spending

increases in property or share prices that increases household wealth.

Question 3

What is cost push inflation

Answer 3

Cost push inflation occurs when rising production costs are passed on to consumers, who then pay higher for final goods and services. Costs reflect the prices paid for productive inputs. Periods of cost push inflation can be attributed to increases in the prices of significant productive inputs.

Cost push inflation are related to supply side events that drive up the cost of essential inputs in factor markets

Question 4

What can cause cost push inflation

Answer 4

Natural disasters (floods, fires, earthquakes)

Geopolitical events

Increasing import prices caused by a depreciating

Australian dollar

Wage increases

Increase in taxes