How can demand-pull inflation lead to cost-push inflation? O A. Demand-pull infi

Question

How can demand-pull inflation lead to cost-push inflation? O A. Demand-pull infiation shifts the aggregate supply curve downward, which causes a temporary negative supply shock and hence cost-push ? B When demand-pull inflation occurs, unemployment is usually above the natural rate level, thus providing a grater chanco for cost-push inflation O C. When a demand-pull inflation produces higher inflation rates, it could prompt workers to demand higher wages in anticipation of future higher O D. Although policymakers struggle with the distinction between demand-pull inflation and cost-push inflation, these are unrelated and one cannot inflation. to occur. inflation, creating cost-push inflation. lead to the other

Explanation / Answer

Ans is C

Demand pull inflation means when demand increases then there will be increase in prices. Since worker will anticioate this increase in prices and will demand higher price/wage. Higher wage will be the part of cost and thus cost of production will increase leading to increase in inflation because supply curve will shift leftward. Thus demand pull leads to cost push inflation.

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