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Cost Push And Pull Inflation Essay

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The cost push inflation is caused by a drop in aggregate supply (potential output), this may be due to natural disaster, or increased prices of inputs e.g. a sudden increase in oil may lead to increased oil prices, and can cause cost push inflation.
Cost push inflation happens when production costs rises. Sellers can no longer supply the same output at current prices, and again demand-pull inflation is set off by an increase in demand for goods and services without any increase in supply.
Some of the major effects of inflation are as follows: 1. Effects on Redistribution of Income and Wealth 2. Effects on Production 3. Other Effects
Inflation affects different people differently. This is because of the fall in the value of money. When price rises or the value of money falls, some groups of the society gain, some lose and some stand in-between. According to …show more content…

. An increase in the price of a particular good (e.g. food and patrol) is not inflation. There is inflation only when the prices of most goods and services in the economy are increasing. Therefore Economists best define it as the general (or average) increase in price level.

Three common types of inflation are Deflation, Reflation and disinflation.
1. Deflation
Deflation means a decline in the level of prices. In some cases, it could be defined as falling prices and substantial unemployment. Also, according to Van Der Merwe and Mollentze (2010:19) said Deflation is the opposite of inflation. Deflation is therefore a continuous decline in the general price level of the economy.
2. Reflation
Reflation means normalising prices that have previously fallen. (Mukherjee, 2002:738).
3. Disinflation
Disinflation is the reduction in the inflation rate. Say for example the annual rate of increase in the general price level moderates from 5 to 4 per cent, this moderation represent

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