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What are the Causes and theories of inflation

What are the Causes and theories of inflation?

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1. Demand pull inflation:  Spending increases faster than production.

2. Cost push or supply side inflation:  Prices rise because of rise in per-unit production costs (Unit cost = total input cost/units of output).

a. Wage push can occur as result of union strength.

b. Supply shocks may occur with unexpected increases in the price of raw materials.

Complexities: It is difficult to distinguish between demand pull and cost push causes of inflation, although cost push will die out in a recession if spending does not also rise.

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