What is the difference between demand-pull inflation and cost-push inflation?
A) Cost-push inflation is caused by shifts of the aggregate demand curve, but demand-pull inflation is caused by cyclical activity in the economy.
B) Demand-pull inflation is caused by shifts of the aggregate demand curve, but cost-push inflation is caused by shifts of the aggregate supply curve.
C) Demand-pull inflation is caused by government deficit spending, but cost-push inflation is caused by firms.
D) Demand-pull inflation is caused by foreign demand, but cost-push inflation is caused by domestic production problems.

Question

What is the difference between demand-pull inflation and cost-push inflation?  
A) Cost-push inflation is caused by shifts of the aggregate demand curve, but demand-pull inflation is caused by cyclical activity in the economy. 
B) Demand-pull inflation is caused by shifts of the aggregate demand curve, but cost-push inflation is caused by shifts of the aggregate supply curve. 
C) Demand-pull inflation is caused by government deficit spending, but cost-push inflation is caused by firms. 
D) Demand-pull inflation is caused by foreign demand, but cost-push inflation is caused by domestic production problems.

Quizplus · Accepted Answer

Demand-pull inflation is caused by increases in aggregate demand creating a shortage of supply and an increase in prices. Cost-push inflation is caused by factors that increase the cost of production, such as increases in wages or raw material costs, leading to a decrease in aggregate supply and an increase in prices. Therefore, demand-pull inflation is caused by shifts of the aggregate demand curve, while cost-push inflation is caused by shifts of the aggregate supply curve.

What Is the Difference Between Demand-Pull Inflation and Cost-Push Inflation