Question

How does the demand fueled inflation differ from the cost fueled inflation? How can they be controlled? -04
Need 4 mark answer

Answer 1

Answer:

Cost-push inflation is the decrease in the aggregate supply of goods and services stemming from an increase in the cost of production. ... Demand-pull inflation can be caused by an expanding economy, increased government spending, or overseas growth.

Answer 2

In demand fueled, as price increases so does wage rate, whereas in cost as wage rate increases so the price.

• The gradual rise in price level leads to a marked escalation in wage rate in event of demand inflation. Whereas, in the former one, a rise in wage rate leads to an escalation in cost level.
• As time gap between a price rise and a salary raise is less than a year, and index numbers computation is restricted to yearly data, these changes are reflected by relevant index numbers, which fail to identify what leds to what.
• These can be controlled as -

1. Implementation of strict monetary policy.
2. Implementation of effective fiscal policy.
3. Boosting the interest rate
4. Reducing government spending, or increasing the taxes