📚 Topic Summary
Inflation refers to a general increase in the prices of goods and services in an economy over a period. Demand-pull inflation occurs when there is an increase in aggregate demand, leading to a situation where there is "too much money chasing too few goods." Cost-push inflation, on the other hand, arises when the costs of production increase, such as rising wages or raw material prices, which then businesses pass on to consumers in the form of higher prices.
🧮 Part A: Vocabulary
Match the terms with their definitions:
- Term: Aggregate Demand
- Term: Cost-Push Inflation
- Term: Demand-Pull Inflation
- Term: Stagflation
- Term: Supply Shock
- Definition: Inflation caused by increased costs of production.
- Definition: Total demand for goods and services in an economy.
- Definition: A sudden event that drastically changes the supply of a product or commodity.
- Definition: Inflation caused by increased aggregate demand.
- Definition: Persistent high inflation combined with high unemployment and stagnant demand in a country's economy.
✍️ Part B: Fill in the Blanks
Complete the following paragraph with the correct terms:
__________ inflation happens when increased __________ leads to higher prices because there's more demand than supply. Conversely, __________ inflation occurs when the __________ of production rise, like increased wages or raw material costs.
🤔 Part C: Critical Thinking
Explain a real-world scenario where both demand-pull and cost-push inflation could occur simultaneously. What measures could the government take to address this situation?