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Understanding Demand-Pull and Cost-Push Inflation in Economics

This guide explores the differences between demand-pull inflation and cost-push inflation. It details how shifts in aggregate supply impact prices and output in various scenarios, including increases in resource costs, productivity enhancements, and government regulations. The effects on the auto and computer industries are analyzed through aggregate demand and supply (AD/AS) models. Graphical representations will help visualize these economic concepts and their implications for employment levels and market dynamics.

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Understanding Demand-Pull and Cost-Push Inflation in Economics

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  1. Warm-Up: What is the difference between demand-pull inflation and cost-push inflation?

  2. Starting Point: PL AS A PL1 AD O/E1 O/E

  3. Increase in AS: PL AS AS2 A PL: _______ O/E: _______ PL1 B PL2 O/E2 O/E1 O/E

  4. Decrease in AS: AS2 PL AS B PL2 A PL: _______ O/E: _______ PL1 O/E2 O/E1 O/E

  5. DETERMINANTS OF AGGREGATE SUPPLY • Resource Prices • Productivity • Production Technology • Government Taxes and Regulation

  6. The auto industry is experiencing an increase in the price of steel. Using AD/AS analysis, show the effects of aggregate supply, prices and output/employment. Complete the following scenarios with your partner

  7. Labor productivity in the U.S. is on the rise. Graph the situation and show how aggregate supply, prices and output/employment are affected. Shift the AS curve?

  8. Improved technology has been developed in the U.S. computer industry. Graph the situation and show how aggregate supply, prices and output/employment are affected. Shift the AS curve?

  9. New government regulations have been passed by Congress to improve the safety of SUVs. Graph the situation and show how aggregate supply, prices and output/employment are affected. Shift the AS curve?

  10. Labor productivity in the computer industry has been rising at a faster rate than worker’s wages. Graph the situation and show how aggregate supply, prices and output/employment are affected. Shift the AS curve?

  11. 41) Labor productivity in the U.S. is on the rise. Graph the situation and show how aggregate supply, prices and output/employment are affected. 42) New government regulations have been passed by Congress to improve the safety of SUVs. Graph the situation and show how aggregate supply, prices and output/employment are affected. Complete the Following Graphs for Aggregate Supply on your own paper (10 pts. Ea)

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