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Cost-Push Inflation

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Do we use the price index system?

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In economics, inflation is an increase in the general level of prices of a given kind. General inflation is referred to as a rise in the general level of prices.

Cost-Push Inflation
The text "Economics" (2nd Edition) by Parkin and Bade gives the following explanation for cost-push inflation:

"Inflation can result from a decrease in aggregate supply. The two main sources of decrease in aggregate supply are

* An increase in wage rates
* An increase in the prices of raw materials

These sources of a decrease in aggregate supply operate by increasing costs, and the ...

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Cost-Push Inflation

Explain how cost-push inflation might prompt policymakers to take actions that subsequently cause demand-pull inflation. Explain how this demand-pull inflation could lead to another round of cost-push inflation. Illustrate this process graphically using the aggregate demand-aggregate supply model.

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