Question

Distinguish between demand pull inflation 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 rise in prices.	(iii)	In this situation, there is rise in prices on the one hand and fall in output and employment on the other hand.
(iv)	Inflation arises because the aggregate demand at the existing price level far exceeds 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.