Cost-Push Inflation
Give an example of demand-pull inflation.
A classic example of demand-pull inflation is observed during the holiday season. The heightened demand for a specific toy or video game leads to people eagerly standing in lines and competing to purchase the product, often at elevated prices.
Write an example of demand-pull inflation in India.
Notable instances of demand-pull inflation in India were evident during the pandemic, causing a surge in the prices of handwashes, hand sanitizers, and masks. The increased economic demand outpaced the supply capacity, resulting in higher prices for these essential items.
What are the primary effects of demand-pull inflation?
Demand-pull inflation brings about various effects, including elevated borrowing costs, a reduction in consumer purchasing power, and sustained inflationary growth. This occurs when the overall production capacity of the economy cannot match the rising demand for goods and services.
Why is 2% inflation good?
Maintaining a 2 percent inflation rate is considered beneficial as it prevents the inflationary cycle, where individuals rush to buy goods anticipating higher prices in the future. By keeping inflation at 2 percent, costs only need to rise modestly, curbing the risk of shortages and excessive price increases.