Question

In the short-run which form of inflation is caused by a decrease in the supply curve or an increase in wages?

Answer 1

Cost push inflation occurs when there is a decrease in the supply curve or an increase in wages.

Wage-Push Inflation, Profit-Push Inflation, and Material-Cost-Push Inflation are three of the main components of the cost-push inflation theory.

These theories often consist of three components:

1. The cost increase is independent of the level of demand in the relevant market.
2. That an essential cost element, like as wages, profits (mark-up), or material costs, is how the push forces work. In light of this, cost-push inflation can take the forms of wage-push inflation, profit-push inflation, material-cost-push inflation, or a mixed variation of inflation in which multiple push causes reinforce one another; and
3. Instead of being absorbed by producers, the cost rise is transferred to consumers in the form of increased prices.

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