Question

Distinguish between demand pull inflation and cost push inflation.

Differentiate between demand-pull and cost-push inflation.

Answer 1

Demand Pull Inflation		Cost Push Inflation
(i)	This inflation arises due to excessive demand.	(i)	This inflation arises because of an increase in cost.
(ii)	This is considered the oldest theory of price rise.	(ii)	Cost-push inflation is a new theory of inflation.
(iii)	In this situation, output and employment rise along with a rise in prices.	(iii)	In this situation, there is a rise in prices on the one hand and a fall in output and employment on the other hand.
(iv)	Inflation arises because the aggregate demand at the existing price level far exceeds the aggregate supply of goods and services.	(iv)	Inflation is possible in a situation where aggregate demand is falling and the cost of production is rising.

Answer 2

Demand Pull Inflation	Cost Push Inflation
1. The excess demand conditions cause the price level to increase.	1. The increased cost of production results in cost-push inflation.
2. Basic factors for demand pull inflation are: An increase in population or a rise in income level, etc.	2. The factors causing cost push inflation are: an increase in the price of various factors of production, like fuel, wages, or a fall in supply, etc.