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Economics explained

Category:

Inflation and deflation

Cost push inflation

Cost push inflation

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Cost-push inflation is caused by higher costs of production, which makes firms raise their prices in order to maintain their profit margins.



For example, higher raw material costs, increased wages and soaring rents...



...shift the aggregate supply curve for the economy to the left from AS to AS1.



This will force up the general price level from P to P1



This will reduce national income from Y to Y1

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