Identify and describe the two main types of Inflation and their triggers.

Cost-push inflation: caused by rising costs within an industry such as an increase in cost of raw materials, more expensive labour due to trade unions, indirext taxes imposed by the government. Can also be caused by firms exercising monopoly power. Demand-pull inflation: caused by an increase in demand within an economy, AD grows at an unsustainable rate so firms push up prices. Mainly caused by a depreciation in a currency, making imports more expensive and exports a lot cheaper. Also caused by fiscal stimulus such as a reduction in income tax or more government spending, leading to higher levels of disposable income. Lower interest rates also have a similar effect.

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Answered by Ollie T. Economics tutor

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