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Text 10 Demand-Pull and Cost-Push Inflation
Inflation can occur for several reasons, and economists usually distinguish between two basic types of inflation, depending on whether it originates from the buyers' or the sellers' side of the market.
Demand-pull inflation is a rise in the general price level resulting from an excess of total spending (demand). Demand-pull inflation occurs when aggregate demand in the economy increases faster than the economy's productive capacity. If demand exceeds aggregate supply, the average prices of goods and services are pulled up by the “excess” demand. Demand-pull inflation is often expressed as “too much money chasing too few goods.” When sellers are unable to supply all the goods and services buyers demand, sellers respond byraising prices. In short, the general price level in the economy is “pulled up” by the pressure from buyers' total expenditures.
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Text 10 Demand-Pull and Cost-Push Inflation
Inflation can occur for several reasons, and economists usually distinguish between two basic types of inflation, depending on whether it originates from the buyers' or the sellers' side of the market.
Demand-pull inflation is a rise in the general price level resulting from an excess of total spending (demand). Demand-pull inflation occurs when aggregate demand in the economy increases faster than the economy's productive capacity. If demand exceeds aggregate supply, the average prices of goods and services are pulled up by the “excess” demand. Demand-pull inflation is often expressed as “too much money chasing too few goods.” When sellers are unable to supply all the goods and services buyers demand, sellers respond byraising prices. In short, the general price level in the economy is “pulled up” by the pressure from buyers' total expenditures.
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