cost-push and demand-pull inflation
Asked by: reserve2-ga
List Price: $6.00
24 Jul 2005 20:14 PDT
Expires: 23 Aug 2005 20:14 PDT
Question ID: 547434
Do the following events initially cause cost-push or demand-pull inflation? - A rise in the price of all imported metals. - Destruction of all bridges during wartime. - Mobilization of all factories and all workers to produce goods for the war effort. - A rise in consumer confidence after the war.
Re: cost-push and demand-pull inflation
Answered By: omnivorous-ga on 25 Jul 2005 10:38 PDT
Reserve2 --- About.com?s Mike Moffatt does a good job of outlining the different causes of ?cost-push? or ?demand-pull? inflation: About.com ?Cost-Push Inflation vs. Demand-Pull Inflation,? (Moffatt, undated) http://economics.about.com/cs/money/a/inflation_terms.htm Cost-push is generally due to boosts in labor rates or in the cost of raw materials. Often it?s due to foreign currency moves such as the recent decision by the Chinese to allow the yuan to float upwards. Demand-pull inflation is due to increases in the money supply; increases in government purchases; and increases in the prices elsewhere in the world. Some of your examples are clear ? and some provide examples of both. ? Rise in price of imported metals: cost-push ? Destruction of bridges: it will increase transportation costs initially, making it a cost-push inflation factor. However, later the bridges will undoubtedly be re-built ? making it a demand-pull inflator at that point. ? Mobilization of factories: likely to be a demand-pull inflator but it can also be a cost-push issue if wages rise to attract those not in the labor force or if key supplies are tight. Which is why governments often put price freezes in place during war-time. ? Rise in consumer confidence: most likely to be a demand-pull factor, as money is taken from savings and spent on consumer goods. In this case the money supply increases. Google search strategy: Cost push inflation Demand pull inflation Best regards, Omnivorous-GA
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