Economics • Economic BasicsMedium
How does cost-push inflation fundamentally differ from demand-pull inflation?
A. Cost-push inflation is driven by rising production costs, whereas demand-pull inflation is caused by excessive aggregate demand relative to supply✓ Correct Answer
B. Cost-push inflation occurs only during economic booms, while demand-pull inflation happens during deep depressions
C. Cost-push inflation is regulated by fiscal policy, whereas demand-pull inflation is managed solely by trade tariffs
D. Cost-push inflation decreases nominal wages, while demand-pull inflation increases real interest rates
💡 Solution & Explanation
Cost-push inflation is initiated by increases in the cost of wages or raw materials that reduce aggregate supply, whereas demand-pull inflation arises when aggregate demand outpaces aggregate productive capacity. Both lead to rising price levels but stem from opposing sides of market equilibrium. Supply chain bottlenecks commonly trigger cost-push price pressures.
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