Cost-push inflation

Level Three Macroeconomics

Cost-push inflation
What are the constituents of Aggregate
Supply?
The costs of production; the cost of labour, of
raw materials, of capital, of land, and of
entrepreneurial skills.
An increase in the costs of production will
shift the Short Run Aggregate Supply to the
left.
AS left shift
Price level
Examples
The major, much-quoted, example of cost-
push inflation is oil price increases.
But also minimum wage increases,
a change in the price of imports for
production (eg a decrease in currency causes
essential raw materials to become more
expensive),
increases in company tax.
Demand-pull vs cost-push
While demand-pull means an increase in output
(thus employment of resources),
An increase in cost-push means a decrease in
output (so unemployment).

Which concerns most politicians?

Define and explain demand-pull inflation and cost-
push inflation to your neighbour.
Treasury role
Controls government revenue (=taxes) and
spending.