What is cost push inflation:
Cost-push inflation happens when the overall price level rises due to higher production costs, such as wages, raw materials, or supply shortages. Businesses pass these costs to consumers, leading to inflation.
What is demand pull inflation:
Demand-pull inflation occurs when demand for goods and services exceeds supply, causing prices to rise. It happens when consumers, businesses, or the government spend more, pushing overall prices higher.
The effects of cost push inflation:
Higher production costs lead to increased prices.
Reduced purchasing power, as wages may not keep up.
Lower economic growth if businesses cut production.
Possible unemployment if companies reduce workforce to manage costs.
The effects of emand pull inflation:
Increased consumer spending drives economic growth.
Rising wages as businesses compete for workers.
Higher interest rates if central banks step in to control inflation.
Risk of overheating the economy, leading to instability.
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