Question:
Which of the following statements best distinguishes between demand-pull and cost-push inflation?
(4) Demand-pull inflation is driven by increases in aggregate demand, while cost-push inflation is driven by increases in the cost of production.
Correct Answer:
(4)
Answer Explanation:
Demand-pull inflation occurs when there is “too much money chasing too few goods,” represented by a rightward shift in Aggregate Demand. Cost-push inflation is a supply-side shock, occurring when the costs of vital inputs (like wages or raw materials) rise, forcing producers to raise prices, represented by a leftward shift in Aggregate Supply.
Topic: Inflation Year: 2024
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