MONEY AND INFLATION — Economics STD 12 Commerce — Question
Gujarat BoardEnglish MediumSTD 12 CommerceEconomicsMONEY AND INFLATION3 Marks
Question
Show the difference between demand-push and cost push inflation.
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Answer
On the basis of reason, there are two types of inflation:
$(1)$ Demand-push inflation
$(2)$ Cost-push inflation.
The basic difference between them are as under:
$(1)$ In an economy when there is an increase in demand of product which leads to the increase in its price that is called Demand-push inflation.
The inflation caused due to increase in production cost it is called 'Cost push inflation'.
$(2)$ Due to increase in the supply of money in the economy the demand of people is increased.
Government incurs expenditure on basic utilities and increasing population are responsible for Demand-push inflation.
There is an increase in cost of raw material, electricity, water rates, transportation services, machinery etc. are responsible for cost push inflation.
$(3)$ Before $1950,$ monetarist consider demand pull inflation as purely monetary phenomenon.
After $1950,$ Economist Dr. J.M. Keynes brought the concept of cost-push inflation.
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