Question

Describe the two types of inflation that may occur in the economy

Answer 1

The two types of inflation that can occur in economy is demand pull inflationa and cost push inflation.

Demand pull inflation = When the demand in the market is more than the supply can provide, it will be considered as a demand pull inflation in the market. at this point the AD curve has shifted to the right and that has lead to an increase in the inflation and demand.

Cost push inflation= this is an increase in the price due to increase in the cost of production i.e. an increase in the price of petrol, or wages or other raw material will lead to an increase in the inflation. this will be termed as cost push inflation.