Answer to Question #15057 in Macroeconomics for jack

Question

Distinguish between demand pull and cost push inflation. Why might it be difficult to establish the extent to which a given rate of inflation is demand pull or cost push

Answer 1

Demand-pull inflation: prices rise due to shortage; firms produce more and raise price to meet
demand.

Cost-push inflation: prices rise due to increasing costs of production; firms raise price in order to not
produce less.