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The Macroeconomy and Its Aims
Quick questions on Inflation explained: O-Level Economics
3short Q&A pairs drawn directly from our worked dot-point answer. For full context and worked exam questions, read the parent dot-point page.
What is demand-pull inflation?Show answer
Demand-pull inflation is caused by the demand side. It occurs when aggregate demand rises faster than the economy can produce. With more spending than there are goods to buy, there is "too much money chasing too few goods", so prices are pulled up. This is most likely when the economy is near full capacity, so firms cannot easily produce more and respond by raising prices instead.
What is cost-push inflation?Show answer
Cost-push inflation is caused by the supply side. It occurs when the costs of production rise, so firms raise their prices to protect their profit margins. Causes include:
What is the consequences of inflation?Show answer
High or unstable inflation causes several problems:
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