Question

How does demand-pull inflation differ from cost-push inflation?
Responses

Demand-pull inflation is driven by the private sector, while cost-push inflation is driven by the government.
Demand-pull inflation is driven by the private sector, while cost-push inflation is driven by the government.

Demand-pull inflation is driven by consumers, while cost-push inflation is driven by producers.
Demand-pull inflation is driven by consumers, while cost-push inflation is driven by producers.

Demand-pull inflation is driven by producers, while cost-push inflation is driven by consumers.
Demand-pull inflation is driven by producers, while cost-push inflation is driven by consumers.

Demand-pull inflation is driven by the government, while cost-push inflation is driven by the private sector.
Demand-pull inflation is driven by the government, while cost-push inflation is driven by the private sector.

Answer 1

Correct choice: "Demand-pull inflation is driven by consumers, while cost-push inflation is driven by producers."

Brief explanation:
- Demand-pull inflation: rising aggregate demand (from consumers, businesses, government or exports) outstrips the economy’s capacity to supply goods and services, pushing prices up.
- Cost-push inflation: rising production costs (higher wages, raw materials, energy, supply shocks) force firms to raise prices; this can occur even when demand is weak and can produce stagflation.