I looked up cost push inflation graph, for the hell of it.
That one interested me because it says "in fact" but uses pictographs rather than graphs of actual data. I want to call them "pictograms" but Blogger insists I use the word pictographs. These things:
|Source: Demand Pull and Cost Push inflation with examples at FreeEconHelp|
Where there are two diagonal lines with an arrow between, we are to understand that the line moves from the lower position to the upper position. The arrow indicates this movement...
Maybe I have something wrong. Notice that the one graph shows
The price level going up as a result of a decrease in AS
and the other shows
The price level going up as a result of an increase in ADAccording to the axis labels, the "up" direction means a change in the price level and the "sideways" direction means a change in Real GDP. So I'm thinking the arrow between the AD and the AD' lines should be pointing to the right. And the arrow between the AS and the AS' lines should be pointing to the left. Otherwise all the arrows show price changes and none of the arrows show changes in supply or demand.
I don't think the lines move from the lower position to the upper position. I think the AS line moves leftward to the AS' position, and the AD line moves rightward to the AD' position. But I don't know if I have that right.
In any event, on each graph there are two horizontals that start at an AS:AD intersection and go back to the Price Level axis. These horizontals represent the price level before and after the movement of the diagonal. In each case obviously the price level is higher after the movement. That's how you know there's inflation!
Okay? Now, none of that interests me. None of that is why I'm writing today. I'm writing because I want to talk about the change in the location of the intersection points.
The graphs both show an up arrow beside the Price Level axis, indicating that the intersection moved upward in both cases. That makes sense. The intersection represents the price level achieved by the interaction of supply and demand. And the graphs both show inflation (as opposed to deflation, say) so we would expect to see an increase in the price level as a result of the movement of the diagonal line.
But that's not the interesting thing. The interesting thing is not the upward change of the intersection point, but the sideways change. The sideways change is leftward for the one type of inflation, and rightward for the other. See here:
|The change in Real GDP is in opposite directions for the two types of inflation|
I don't want to suggest that Real GDP must decrease when the inflation is cost-push. Real GDP is generally always going up. So maybe it goes up a little less if the inflation is cost-push, and it goes up a little more if the inflation is demand-pull. That's the real difference to look for, when you want to know whether the inflation is cost-push or demand-pull.
// Related post: The Cost-Push Economy