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Money & WorkFact

Inflation has two engines, and they need different brakes.

Demand-pull inflation happens when too much money chases too few goods, for instance after stimulus packages. Cost-push inflation happens when inputs get pricier, such as energy or wages, and firms pass the costs on. Rate hikes work well against the first type; against the second, often only slowly and painfully.

Useful: When prices rise, first ask: is this coming from demand or from costs?

Source: de.wikipedia.org

InflationPreiseWirtschaft

Difficulty:

Question on this card

An oil price shock pushes prices up. What kind of inflation is that?

  1. Demand-pull inflation
  2. Cost-push inflation
  3. Imported deflation
  4. Wage-price spiral
Show the answer

Correct: Cost-push inflation

Pricier inputs like oil raise firms' costs, which they pass on.

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