Question

In the _____________ model inflation is caused by owners of resources (including labor) increasing their prices that result in increases in product prices throughout the economy.

Answer 1

Answer:

In the cost-push model inflation is caused by owners of resources (including labor) increasing their prices that result in increases in product prices throughout the economy.

Explanation:

Inflation is an increase in the price of goods and services caused by a number of factors in the economy. There are two major types of inflation models;

1. Cost-push inflation

A cost-push inflation is an increase in prices caused by an increase in the production cost. The increase in production cost can be caused by items such as; cost of labor, raw materials or resources that are useful in the manufacture or operation of other products. This increase in production cost in turn increases the product prices of its associated products.

2. Demand pull inflation

Demand pull inflation is an increase in prices caused by an increase in the demand for the product. When the consumer demand for a certain product increases, the price of the particular product also increases. This is majorly due to the fact that a high demand causes the available supply to diminish leading to limited resources. When the demand supersedes the supply, consumers are willing to pay higher for the product.