Theoretically,one can distinguish a demand-pull inflation from a cost-push inflation by comparing
A)how fast prices rise relative to wages.
B)the unemployment rate with its natural rate level.
C)when prices rise relative to wages.
D)government debt to real GDP.

Question

Quizplus · Accepted Answer

The unemployment rate with its natural rate level can help determine whether the inflation is due to demand-pull or cost-push factors. If the unemployment rate is below its natural rate level, it suggests that the inflation is due to increased demand for goods and services (demand-pull), whereas if the unemployment rate is above its natural rate level, it suggests that the inflation is due to higher production costs (cost-push). Therefore, comparing the unemployment rate with its natural rate level can help distinguish between the two types of inflation. Comparing the speed of price rises relative to wages (A) or the timing of price rises relative to wages (C) may not clearly distinguish between demand-pull and cost-push inflation. Government debt to real GDP (D) does not directly relate to inflation type.

Theoretically,one Can Distinguish a Demand-Pull Inflation from a Cost-Push Inflation