Types of inflation
- Cost-push inflation – when a rise in prices is caused by a rise in the cost of production, such as higher oil prices
- Demand-pull inflation – when a rise in prices is caused by rising aggregate demand and firms pushing up prices due to the shortage of goods
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Cost-Push Inflation
Cost-push inflation is the decrease in the aggregate supple of goods and services stemming from an increase in the cost of production.
An increase in the costs of raw materials or labor can contribute to cost-pull inflation.
Demand-Pull Inflation
Demand-pull inflation is the increase in aggregate demand, categorized by the four sections of the macroeconomy: households, business. governments. and foreign buyers.
Demand-pull inflation can be cause by an expanding economy, increased government spending, or overseas growth.
Demand shock
Demand shocks occur when the demand for products drops as people stop earning money. A tactic to fix this is to stimulate the economy. In 2008, Australia gave households cash and encouraged them to spend to jumpstart the economy.
In 2020, the problem is also a lac...
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