Cost Push Diagram
One of the important causes of price rise is the rise in price of raw materials.
Cost push diagram. The other is demand pull inflation. Cost push versus demand pull inflation. Causes of cost push inflation.
Demand pull inflation is the increase in aggregate demand. Cost push inflation is the decrease in the aggregate supply of goods and services stemming from an increase in the cost of production. Cost push inflation can occur when higher costs of production decrease.
Ad is the aggregate demand curve and as 1 and as 2 curves are aggregate supply curves. In the above diagram we see a shift or decrease in the aggregate supply curve from as1 to as2 resulting in a lower real gdp and higher prices from p1 to p2. Cost push inflation such as that caused by a large and persistent rise in the world price of crude oil can be shown in a diagram by an inward shift of the short run aggregate supply curve.
Cost push is one of the two causes of inflation. The aggregate supply curve shifts left because of the cost increase pushing prices up. The fall in sras causes a contraction of national output together with a rise in the level of prices.
Firms buy these inputs now at a higher price. 23 3 where aggregate supply and demand are measured along the x axis and price level along the y axis. Since there was no increase in demand this rise in inflation can be attributed to cost push inflation.
He writes extensively. It occurs when the aggregate demand for a good or service outstrips aggregate supply. It is the primary cause of inflation.
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