How does the demand fueled inflation differ from the cost fueled inflation? How can they be controlled? -04
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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.
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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 -
- Implementation of strict monetary policy.
- Implementation of effective fiscal policy.
- Boosting the interest rate
- Reducing government spending, or increasing the taxes
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