INFLATION CAUSES: Inflation is a persistent increase in the economy's average price level. The two basic types (or causes) of inflation: demand-pull inflation and cost-push inflation. Demand-pull inflation, as the name clearly indicates, results when economy-wide shortages are created by increases in aggregate demand. Cost-push inflation results when an economy-wide shortages are created by decreases in aggregate supply, which are so named because they are more often than not triggered by increases in production cost. See also | inflation | price level | business cycle | unemployment | cost-push inflation | demand-pull inflation | money | aggregate demand | aggregate supply | shortage | aggregate demand determinants | aggregate supply determinants |
