Thursday, July 26, 2012

Differentiate between demand-pull and cost pull inflation.

Demand-pull inflation: which is a situation when aggregate demand largely exceeds available supply of resources & the price are pulled upward due to excessive demand cause by-
·       Increased supply of money
·       Increased marginal efficiency of capital
·       Increased propensity to consume
·       Massive government expenditure
·       Large export surplus.
 Cost-push inflation: cost-push inflation depicting a situation when rising prices of factors of production increase cost of production, which in turn cause rise in prices of the output.

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