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15. Distinguish between demand-pull inflation and cost-push inflation. Which of the two types is most likely to be associated with a (negative) GDP gap? Which with a positive GDP gap, in which actual GDP exceeds potential GDP? inflation occurs when prices rise because of an increase in aggregate spending not fully matched by an increase in aggregate output. It is sometimes expressed as "too much spending (or money) chasing too few goods." inflation describes prices rising because of increases in per unit costs of production. inflation is most likely to be associated with a negative GDP gap, as the rising production costs reduce spending and output. inflation is more likely to occur with a positive GDP gap, because actual GDP will exceed its potential only when aggregate spending is strong and rising. As the economy produces above

15. Distinguish between demand-pull inflation and cost-push inflation. Which of the two types is most likely to be associated with a (negative) GDP gap? Which with a positive GDP gap, in which actual GDP exceeds potential GDP? inflation occurs when prices rise because of an increase in aggregate spending not fully matched by an increase in aggregate output. It is sometimes expressed as "too much spending (or money) chasing too few goods." inflation describes prices rising because of increases in per unit costs of production. inflation is most likely to be associated with a negative GDP gap, as the rising production costs reduce spending and output. inflation is more likely to occur with a positive GDP gap, because actual GDP will exceed its potential only when aggregate spending is strong and rising. As the economy produces above

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
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**15. Distinguish between demand-pull inflation and cost-push inflation. Which of the two types is most likely to be associated with a (negative) GDP gap? Which with a positive GDP gap, in which actual GDP exceeds potential GDP?** Demand-pull inflation occurs when prices rise because of an increase in aggregate spending not fully matched by an increase in aggregate output. It is sometimes expressed as “too much spending (or money) chasing too few goods.” Cost-push inflation describes prices rising because of increases in per unit costs of production. Cost-push inflation is most likely to be associated with a negative GDP gap, as the rising production costs reduce spending and output. Demand-pull inflation is more likely to occur with a positive GDP gap, because actual GDP will exceed its potential only when aggregate spending is strong and rising. As the economy produces above its potential, bottlenecks and more severe resource scarcity occur, driving up prices.
Transcribed Image Text:**15. Distinguish between demand-pull inflation and cost-push inflation. Which of the two types is most likely to be associated with a (negative) GDP gap? Which with a positive GDP gap, in which actual GDP exceeds potential GDP?** Demand-pull inflation occurs when prices rise because of an increase in aggregate spending not fully matched by an increase in aggregate output. It is sometimes expressed as “too much spending (or money) chasing too few goods.” Cost-push inflation describes prices rising because of increases in per unit costs of production. Cost-push inflation is most likely to be associated with a negative GDP gap, as the rising production costs reduce spending and output. Demand-pull inflation is more likely to occur with a positive GDP gap, because actual GDP will exceed its potential only when aggregate spending is strong and rising. As the economy produces above its potential, bottlenecks and more severe resource scarcity occur, driving up prices.
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