The last time this happened to any great extent in the UK economy was in the late 1980s. There are a few differences between demand-pull and cost-push inflation which are discussed in this article. Cost-push inflation is the type of inflation in which the supply of the goods and services gets decreased, and the price gets increased due to the rise in the prices of the factors of production. Demand pull inflation can be shown in a diagram such as the one below. inflation becomes a threat when an economy has experienced a strong boom with GDP rising faster than the long run trend growth of potential GDP. The impact of wage inflation depends on whether it is a real increase (higher than inflation) or just nominal increase (same wage increase as inflation). Inflation . Real National Income . Economic growth is pushing towards 10 years as of this writing. Demand-pull inflation is arises when the aggregate demand increases at a faster rate than aggregate supply. Higher prices are then the result, as costs of production increases due to a decreased aggregate supply. However, starting again from Y t a wage push or a profit push that shifts the aggregate supply function from AS 1 to AS 2 will, with the AD function still at AD 1, produce an intersection at B and reduce output below the full employment level. In the above diagram, X-axis indicates aggregate demand, and the Y-axis indicates supply curves are measured at the general price level. #1 – Wage push inflation One of the causes of cost-push inflation is when the increase in the wages of labour is more than the increase in their productivity at work. Summary: Wage inflation is an increase in nominal wages, meaning workers receive higher pay. Cost-push inflation is shown on the diagram below. The minimum wage was raised in 2007, 2008 and 2009 to the current federal rate we have today. The… This is demand-pull inflation causing cost increases. Since the labourers have to be paid more, the producers increase the price of finished goods to pass on the hike in production cost that eventually results in inflation. However, if wages rise because of greater trade union power pushing through larger wage claims - this is cost-push inflation. Fewer jobs at lower wages coupled with the long time frame unemployed people had to wait to even get a job at any wage caused tempers to flare. Labour Unions demand wage hike independent of the demand for labour and successful negotiations lead to increase in wage rates. ... Top 3 Theories of Inflation (With Diagram) Wage inflation tends to cause price inflation and higher growth. Dibrugarh University CBCS Semester 2 Sem 2 Bcom Commerce Study Notes Macro Economics inflation unemployment labour ebook explanation unit 3 Explains: The demand-pull inflation tries to explain the phenomena that how does the inflation starts. It stands in contrast to demand-pull inflation. 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