Macroeconomics
4. Exports: A surge in exports can also contribute to demand-pull inflation, especially if the domestic currency is weak (cheap), making exports more attractive to foreign buyers. Graphically, demand-pull inflation is illustrated by an increase in aggregate demand, andtherefore, a shift of the aggregate demand curve to the right (since inflation involvesgeneralpricelevelsatthe level of the whole economy, aggregate or total demand is affected, not onlyindividualdemand).This causes the general price level to rise.
Cost-Push Infation Cost-push inflation occurs when the overall price level in an economy rises due to increased production costs, particularly those related to factorsofproductionsuchaslabor,rawmaterials,and energy.Thistypeofinflationischaracterizedbyasituationwhere businessesexperiencehighercosts , and in response, they raise the prices of their products or services to maintain their proft margins. Cost-push inflation can be explained and understood in greater detail through the following points: 1. IncreasedInputCosts: Theprimarydriverofcost-pushinflationis anincreaseinthecostsof production inputs . This can includerisingwagesforlabor,higherpricesforrawmaterialsand commodities, increased energy costs, and other expenses associated with the production process. 2. Supply Shocks: Cost-push inflation is often triggered by supply shocks . These are sudden, unexpectedeventsthatdisruptthesupplyofkeyresourcesorinputs .Forinstance,asudden spike in oil prices due to geopolitical tensions or a severeweathereventdamagingcropscan lead to cost-push inflation. 3. ReducedProftMargins: Whenbusinessesfacehigherinputcosts,theymayinitiallyattemptto absorb some of these costs by reducing their proft margins. However,ifthesecostincreases
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