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      Question

      When inflation is a result of an increase in the price

      of factors of production, it can be categorised as ____________ .
      A Cost-push inflation Correct Answer Incorrect Answer
      B Demand-pull inflation Correct Answer Incorrect Answer
      C Stagflation Correct Answer Incorrect Answer
      D Depression Correct Answer Incorrect Answer
      E None of the above Correct Answer Incorrect Answer

      Solution

      Cost-Push Inflation Cost-push inflation occurs when demand-pull inflation is going strong. When raw materials costs increase for businesses, the businesses in turn must raise their prices, regardless of demand. Demand-Pull Inflation When demand for goods or services rises faster than the supply of those goods and services, the result is demand-pull inflation. Demand-pull inflation is when there is an increase in aggregate demand, and the supply remains the same or decreases. When supply cannot meet growing demand, prices for goods and services are pulled higher.

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