Demand-Pull Inflation vs Cost-Push Inflation
Demand-Pull Inflation and Cost-Push Inflation are two Unemployment & Inflation concepts in AP Economics that students often mix up. In short: demand-pull inflation is demand-pull inflation is caused by excess demand. Meanwhile, cost-push inflation is cost-push inflation is caused by increased costs. Here is how they compare side by side.
Demand-pull inflation is caused by excess demand.
Demand-pull inflation occurs when aggregate demand exceeds the available supply of goods and services, causing prices to rise. This type of inflation is often caused by an increase in consumer spending, investment, or government expenditure. As demand increases, businesses respond by raising their prices, leading to inflation. Demand-pull inflation can be controlled by reducing aggregate demand through monetary or fiscal policy.
Cost-push inflation is caused by increased costs.
Cost-push inflation occurs when there is an increase in the costs of production, such as wages or raw materials, which leads to an increase in prices. This type of inflation is often caused by supply chain disruptions, increases in commodity prices, or labor market shortages. As costs rise, businesses respond by raising their prices, leading to inflation. Cost-push inflation can be controlled by reducing costs or improving productivity.