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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