Define inflation. Giving reasons, distinguish between demand -pull inflation and cost-push inflation
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Inflation means a sustained increase in the general price level. However, this increase in the cost of living can be caused by different factors. The main two types of inflation are
Demand-pull inflation – this occurs when the economy grows quickly and starts to ‘overheat’ – Aggregate demand (AD) will be increasing faster than aggregate supply (LRAS).
Cost push inflation – this occurs when there is a rise in the price of raw materials, higher taxes, e.t.c
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