Distinguish between demand pull and cost push inflation.

Demand-pull inflation and cost-push inflation are two primary types of inflation that differ in their causes and effects on an economy. Both lead to an increase in the general price level, but they arise from different sources and have distinct economic implications.

Demand-pull inflation occurs when the overall demand for goods and services in an economy exceeds its productive capacity. This type of inflation is driven by an increase in aggregate demand, which includes the total demand from households, businesses, government, and foreign buyers. When this demand outpaces the economy’s ability to produce goods and services, businesses respond by raising prices to balance the supply-demand equation. This increase in demand can come from several sources, such as higher consumer spending, increased government expenditure, or a surge in investment from firms. 

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