How To Distinguish Between Demand-pull And Cost-push Inflation?


2 Answers

Aisha Profile
Aisha answered
Cost Push Inflation refers to a kind of inflation that is caused by decrease in aggregate supply that leads to increase in price. The sources that lead to decrease in aggregate supply are increase in wage rates and increase in raw material prices. On the other hand, Demand Pull Inflation is an inflation that results in increase in aggregate demand. Aggregate demand is increased by increase in money supply, increase in government purchases, increase in price level.
Lois Dawes Profile
Lois Dawes answered
Cost-push inflation and demand-pull inflation are basically the same thing; This is a gamblers paradise. The higher the risk the higher the price the greater the inflation the bigger the win or if it is a good like a diamond the more unique it is the higher the cost and the greater the demand and inflation goes up. Just an example to two things which have an impact on the overall inflation in a country.

Increased wages are usually demanded when the price of "basic goods" go up people tend to demand more so that they can chase the price of goods and services and this causes inflation.The lower the demand the lower the price. The lower the inflation. The more money people have, and the fewer the goods, then the higher the cost, and inflation goes up.

The best way to control cost-push/demand-pull inflation is by controlling the means of exchange; in today's world its money;not the goods or the things it exchanges.

Money should become a tool and not a measure of worth and those who manipulate it by being concerned only with levels of production would thus give money no pecuniary value. These good men would form the bureau of exchange and they should work independent of the Central Bank and the Government.  Their concern is the price of labour.- people's just reward.

In the Bible Story in the vineyard everyone, irrespective of when they started to work were given the same pay. One group was happy to take their salary until they learnt that the next group, who arrived on the scene after they did, and who were blind to what they would earn were getting the same salary. Jealousy aside everyone got what was just.

This is a good way of controlling prices because the true focus is on supply ie doing good work for just wage. It is wages that really determine the price of good and services, and if we expect from hard work, justice from the people who employ us, we would be inclined to work our best and be satisfied with what we got.

In the end supply would be top notch; the balance of prices would be an interesting outcome, and life would be more peaceful with less worry about inflation.

Answer Question