Cost-push inflation: Difference between revisions

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[[Image:As AD cost push.svg|thumb|283px|[[AD-AS model|Aggregate supply – aggregate demand model]] illustration of aggregate supply (AS) shifting to AS' and causing price level to increase while output shrinks]]
'''Cost-push inflation''' is an alleged type of [[inflation]] caused by substantial increases in the cost of important [[good (economics)|goods]] or services where no 操你吗suitable alternative is available. A situation that has been often cited of this was the [[1973 oil crisis|oil crisis]] of the 1970s, which some economists see as a major cause of the inflation experienced in the [[Western world]] in that decade. It is argued that this inflation resulted from increases in the cost of [[petroleum]] imposed by the member states of [[OPEC]]. Since petroleum is so important to industrialized economies, a large increase in its price can lead to the increase in the price of most products, raising the [[inflation rate]]. This can raise the normal or [[built-in inflation]] rate, reflecting [[adaptive expectations]] and the [[price/wage spiral]], so that a [[supply shock]] can have persistent effects.
 
[[Keynesians]] argue that in a modern industrial economy, many prices are ''sticky downward'' or ''downward inflexible'', so that instead of prices for non-oil-related goods falling in this story, a supply shock would cause a [[recession]], i.e., rising [[unemployment]] and falling [[gross domestic product]]. It is the costs of such a recession that likely causes governments and central banks to allow a supply shock to result in inflation.