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Demand-Pull Inflation and Natural Unemployment

Inflation can simply be defined as a persistent and appreciable rise in the general price level of prices. There are two kinds of inflation that can evolve. They are (i) Demand-pull inflation and (ii) Cost-push inflation. Depending on the economic situation of a country there are different factors that contribute to inflation. Each cause has its own cost and effect.
Monetary Causes of Inflation

The monetary causes for inflation are:
1. Over expansion of money supply
2. Excessive expansion of bank credit in a country
3. A high level of deficit financing
4. Other monetary factors like High level of non-development expenditure, higher level of plan investments, accumulation of black money, and incidence of high indirect taxes will lead to inflation.
Non-Monetary Causes of Inflation

Apart from the monetary causes there are non-monetary causes like:
1. High population growth
2. Natural calamities and bad weather conditions like droughts and failure of agricultural crops
3. Higher levels of speculation and hoarding
4. Significant increase in the prices of imports of raw materials and other components
5. Monopoly and unfair trade practices by large industrial houses
6. Non-utilization or under-utilization of resources
Kinds of Inflation

The demand-pull is a situation where the aggregate demand for the goods and services in any economy is in excess of the aggregate supply. This situation develops when there is an abundance of growth in the total demand and thereby an inflationary trend is created.
Cost-push inflation on the other hand is caused by an increased cost to the suppliers. The suppliers at the instance of the increased costs and in order to maintain their profitability level raise the prices of their products or services. When the market prices get...