The Causes of Inflation

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    The Causes of Inflation

    • Inflation can arise from both the demand side and the supply side
    • Demand pull inflation is when increases in the price level are caused by increases in aggregate demand
      • When the economy is producing at or near its potential, an increase in AD will increase the price level
    • Cost push inflation is when increases in the price level are caused by increases in the costs of production
      • This is commonly caused by wage rates rising above the rise of the costs of production
      • It can also be caused by the rise in the cost of raw materials
        • g. the rise in the price of oil will push up the cost of fuel, which will increase the costs of distributing products, etc.

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