Profit-Push Inflation (Sellers' Inflation)
Profit-push inflation, also known as sellers' inflation, is a type of inflation that arises when firms increase their profit markups, typically due to a decrease in market competition. This increase in markup causes the price-setting (PS) curve to shift downward, which opens up a bargaining gap at the current employment level. The emergence of this bargaining gap is what triggers the subsequent rise in inflation.
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Introduction to Macroeconomics Course
Ch.4 Inflation and unemployment - The Economy 2.0 Macroeconomics @ CORE Econ
The Economy 2.0 Macroeconomics @ CORE Econ
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The Accelerating Wage-Price Spiral
Profit-Push Inflation (Sellers' Inflation)
Immediate Stagflationary Outcome of a Negative Supply Shock
Dual Challenge of Higher Inflation and Unemployment from a Persistent Supply Shock
Consider an economy where, following a sudden and significant increase in the price of an essential imported production input, policymakers initially do not intervene and the overall level of employment remains unchanged. Which statement best analyzes the immediate impact of this event on the economy?
An economy that heavily relies on imported oil experiences a sudden and sustained increase in global oil prices. Assuming the overall level of employment in the economy does not change in the short term, arrange the following events in the correct logical order to show how this shock leads to higher inflation.
Analyzing an Inflationary Shock
The Role of the Bargaining Gap in Inflation
In an economy where the level of employment is held constant, a sudden and significant increase in the price of a key imported raw material will cause the Phillips curve to shift downward, indicating lower inflation at the current employment level.
Following a sudden, sharp increase in the price of a key imported production input, an economy experiences inflationary pressure. Match each component of this economic process with its correct description.
Explaining the Inflationary Impact of a Supply-Side Shock
The term 'cost-push inflation' is used to describe the price increases following a negative supply shock (e.g., a rise in oil prices) because the shock directly impacts firms' production costs. In the standard macroeconomic model that explains this phenomenon, the initial impact is represented by a downward shift of the ______.
An economy experiences a significant increase in its overall inflation rate. An economist claims this is a classic case of cost-push inflation originating from a negative supply shock. Which of the following pieces of evidence would provide the strongest support for this specific claim, as opposed to other potential causes of inflation?
An economy experiences a sudden, sharp increase in its inflation rate. During this period, the national unemployment rate remains stable, and data shows that, on average, corporate profit margins have decreased. Two economists are debating the cause. Economist A argues it's due to excessive consumer spending. Economist B argues it's due to a recent global event that raised the price of essential imported industrial components. Based on the provided evidence, which economist's explanation is more plausible, and why?
Figure 5.7: Multi-Panel Diagram of a Negative Supply Shock's Immediate Impact
Origin of the Policy Dilemma from a Negative Supply Shock
Learn After
Figure 4.25: Price Responses to Rising Employment and Capacity Utilization
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?
Upward Shift of the Phillips Curve due to a Negative Supply Shock
Distributional Conflict from Unexpected Inflation
Figure 4.20c: The Mechanism of Profit-Push Inflation
Effect of Low Unemployment on Worker Bargaining Power and the WS Curve
Figure 4.26: Profit-Push Inflation Due to Capacity Constraints
Academic and Central Bank Research on Post-Pandemic Corporate Markups (2022-2023)