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Profit-Push Inflation (Sellers' Inflation)
Figure 4.20c: Illustration of Profit-Push Inflation
Figure 4.20c provides a graphical example of profit-push inflation, which is a form of cost-push inflation initiated by a negative supply-side shock like an increased markup. The diagram illustrates how such a shock shifts the Phillips curve upward by 2%. This shift moves the economy from its initial equilibrium at point A (3% inflation) to point D (5% inflation) while employment remains constant at . The figure also identifies the new, lower supply-side equilibrium employment level at point C on the higher Phillips curve.
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Economics
Economy
Introduction to Macroeconomics Course
Ch.4 Inflation and unemployment - The Economy 2.0 Macroeconomics @ CORE Econ
The Economy 2.0 Macroeconomics @ CORE Econ
CORE Econ
Social Science
Empirical Science
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Figure 4.20c: Illustration of Profit-Push Inflation
Figure 4.25: Price Responses to Rising Employment and Capacity Utilization
Figure 4.26: Profit-Push Inflation from Capacity Constraints and a Downward-Sloping PS Curve
Central Bank Commentary and Research on Corporate Markups (2022-2023)
An economy experiences a period where the costs of labor and raw materials remain stable. However, after a wave of mergers reduces the number of companies in several key industries, the remaining firms begin to increase their prices significantly more than their production costs. Which of the following best identifies and explains the resulting inflationary pressure?
Analyzing Inflation Drivers in an Economy
Explaining an Alternative Inflationary Mechanism
Arrange the following events in the correct chronological order to illustrate the process by which a reduction in market competition can lead to a sustained increase in the general price level.
In a scenario of profit-push inflation, where firms increase their price markups due to a decrease in market competition, the price-setting (PS) curve shifts upward, creating a positive bargaining gap that drives inflation.
Match each component of the profit-push inflation model with its corresponding role or outcome in the economic process.
Evaluating Claims About Inflation Drivers
When firms with increased market power decide to raise their profit margins, the price-setting curve shifts ______, which creates a bargaining gap and initiates an inflationary spiral at the existing level of employment.
Disaggregating Inflationary Pressures
Consider an economy where several key industries become more concentrated, leading to reduced competition. Firms in these industries subsequently raise their prices, even though their costs for labor and materials have not changed. Within the standard wage-setting and price-setting framework, what is the direct mechanism that initiates the resulting inflation?