Cost-push inflation
Describe cost-push inflation and its major source.
Expert
It refers to inflation due to a rise in the cost of production, which causes aggregate supply to fall. Beyond a point any rise in costs are included in the price at which producers are willing to sell goods. This is reflected in as shifting up; with demand (AD) unchanged it causes higher prices in equilibrium.
One major source is minimum wage laws being enacted. These laws cause wage bills to raise that area a major and unavoidable part of total production costs.
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Substitutes: The two goods for which a rise in the price of one good leads to a rise in the demand for another.
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If the MPC is .70 and investment increases by $3 billion, the equilibrium GDP will:
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