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WAEconomicsQuick questions
Unit 4: Macroeconomic Theory and Economic Policy
Quick questions on Inflation: WACE Year 12 Economics Unit 4
2short Q&A pairs drawn directly from our worked dot-point answer. For full context and worked exam questions, read the parent dot-point page.
What is demand-pull inflation?Show answer
Demand-pull inflation occurs when aggregate demand grows faster than the economy's capacity to supply, especially near full employment. Too much spending chases too few goods, bidding up prices. On the AD/AS model, aggregate demand shifts right along a steep supply curve, raising the price level.
What is cost-push inflation?Show answer
Cost-push inflation occurs when the costs of production rise (wages, imported inputs, energy) and firms pass the increase on as higher prices. On the model, aggregate supply shifts left, raising prices while reducing output, the painful combination known as stagflation.
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