DEMAND-PULL INFLATION versus COST-PUSH INFLATION (Courtesy: The PAGE ECONOMISTS VIEWPOINT) When inflation arises out of excess demand conditions in an economy, it is referred to as Demand-Pull Inflation. This for instance may happen when due to a higher purchasing power at the disposal of consumers on account of an excessive increase in money supply, the effective demand of consumers shoots up but enough supply of commodities to meet that demand is not forthcoming owing to low productive capacity! Cost Push Inflation in sharp contrast originates on the Supply Side whenever the increases in costs of production lead to a leftward shift in the supply curve in the economy. This rise in production costs could in turn be due to a supply shock leading to a rise in the costs of materials used as inputs or instead a rise in wage-rates or even a rise in profit-margins on account of various imperfections in the market. Accordingly, Cost-Push Inflation takes the form of Material Cost-Push Inflation, Wage-Push Inflation and Profit-Push Inflation depending upon the underlying reason behind the concerned Cost-Push!
Posted on: Wed, 16 Oct 2013 10:20:25 +0000
Trending Topics
Recently Viewed Topics
© 2015