 In the sequence of lectures, we have discussed basic concept of inflation, then we discussed different measures of inflation, then cost and benefits of inflation. And now we move on to another important topic regarding inflation and that is causes of inflation. What is the reason for inflation? To know the causes of inflation, we need to understand the two types of inflation because each type of inflation has different causes. So, let us go to the types of inflation. There are two types of inflation. One is demand-pull inflation and the other is cost-push inflation. Demand-pull inflation means that when the aggregate demand increases, you think that when people have more income, more money, more wealth, more assets and then they want to consume more. When their demand increases, then when more people start shopping from the market, then the prices will increase because demand has increased. This is called aggregate demand-pull or demand-pull inflation. In this, buyers bid up prices. They are not getting anything, they will be ready to pay more. They are not getting out of the car factory as much as people are ready to buy cars. So, what happens is that people are ready to pay more than the factory price but they buy cars. So, this means that the consumer himself bids up their prices and increases them. And the sellers benefit is that if they charge more, they do not get tensed because people are willing to pay more. If in normal times, they increase their prices, then people will not be able to make noise or people can reduce their consumption. But when people already have high consumption, people have high demand, then in such cases, when the sellers pass on the effect of prices on the consumer, that is, when prices increase, then they do not have much of a problem. So, in such cases, if you want to lower your inflation rate, then either you need to cut the demand, which is a tool of monetary policy, which we will discuss in detail in the topic of monetary policy. But on the other hand, it is also possible that you improve the supply conditions. That is, the supply is so much better, especially if your long-term demand is increasing or the population, for example, increases or people's incomes are increasing, then its solution is not to reduce the aggregate demand from monetary policy. That is, the aggregate demand is reduced for short-runs. If the population is increasing and the demand is being created, then there will be no role in monetary policy. In fact, what do you have to do? You have to improve your production level, whether it is by improving technology, by improving raw materials, by improving its availability or in any way, then you have to improve the supply condition. On the other hand, the second inflation is cost push. What is the inflation? Cost push. One demand is pulled, the other is cost push. Cost push means that the cost of production increases. Now this is the difference between pull and push. Look, the consumer comes to the end of the product cycle. First of all, raw material is collected, the factory is built, the labour and raw material is collected, the energy is collected, the machine is produced, the production goes to the market, the consumer comes to the consumer end point and it is at the top of the market. If the price increases, then it is pulled. Now we are saying that the cost of production is increasing. This means that we have gone to the lower level of production, so the price will be pushed from below. What does it mean? Cost of production has increased. Now, why is the cost of production increased? There can be many reasons for this. For example, oil prices have increased, so the cost of production will increase. Labour has said overall that our life is getting miserable, so our wages have increased, so the economy-wide wages have increased, real wages, for any reason, minimum wage, because of the law or any other reason, so when the cost of production has increased, the raw material availability has decreased, so the cost of production has increased. If the cost of production increases, then what will the firms do? They attempt to pass on that increase in price or that increase in cost to the consumer. If they try to pass on that, then the goods prices will also increase, the finished goods prices will also increase, although whose cost of production has increased? The raw material price has increased. Now, further, I have discussed the causes in detail that real wage can increase, your resource shortage can increase. There can be more such as depreciation of your currency. We will read this in more detail, that when your currency depreciates, then the imported raw material is expensive. Or the government increases taxes on production, like the raw material you are buying from the outside and the import of the raw material increases, because of all these reasons, the cost of inflation will increase and the cost of production will increase. Now, since we have already read the model of the demand-aggregate supply, we will analyze this demand-pull and cost-push in the model of the demand-supply. First of all, we have the aggregate supply and an aggregate demand in this diagram. You will see the aggregate demand as a routine, but the shape of the aggregate supply is different. It is horizontal, it is a positive slope and it is going to the vertical at the end. So, there is nothing like this. When you read the model of demand-supply, you also read that the long-run supply is vertical and the short-run is a positive slope or horizontal. So, these three shapes are gathered here. However, the aggregate demand and aggregate supply intersects here. The real GDP or real value of output is O inflation I and F is your equilibrium inflation. Now, what happens? We are talking about demand-pull. So, demand-pull means the demand of consumers has increased. What is the reason? There can be many reasons. Remittances have increased. Government income tax has decreased. Money supply has increased. Overall, the country's wealth has increased. There can be any reason. When aggregate demand increases, what will be the difference? With aggregate demand, your inflation rate has increased. I and F have increased. On the other hand, your GDP or output has increased by O1. So, this analysis is that when demand increases, prices or inflation increase. But here, this point is important to understand that when inflation comes from demand, inflation also increases and economic activity also increases. This is why inflation is not so harmful and its policy and response is relatively easy. Why? Because prices have increased and economic activity has increased. People benefit from it. People get a job. But where is the problem? The problem is when we have cost-push inflation. If I analyze the cost-push inflation in demand supply, I start from there where initially aggregate demand and aggregate supply intersect. The value of GDP or real output is O and inflation is I and F. Now, we say that the cost-of-production has increased for any reason. When the cost-of-production increases, aggregate supply shifts to the left side. We discussed this in the course of Monetary Economics. When expected inflation rate increases, aggregate supply shifts to the left side. Why shift? Because expected inflation rate increases and the cost-of-production increases. So, when aggregate supply increases or the oil price increases, the cost-of-production increases. So, when aggregate supply shifts to the left side for any reason, the result is that your inflation rate has increased and you get I and F. But the aggregate economic activity or output or GDP has decreased and it has become O and F. This is the difference between cost-of-production and demand-of-production. When the demand-of-production increases and the economic activity increases, people get employment. But when the cost-of-production increases and the inflation increases but the economic activity decreases and people get employment. Employment opportunities have decreased. What we will say is the condition of the stack-of-production. We call this stack-of-production as unemployment has increased and economic activity has decreased and inflation has increased too. This is a dangerous inflation and its policy response is also very technical. Next, we will ask whether it is possible that inflation does not increase and economic activity increases. So, yes, we call it non-inflationary economic growth. And then it is possible that when aggregate demand increases then in aggregate demand, if the demand increases because of the population, then you have to improve your production side too. So, when your aggregate demand increases in the economy, if something is done to increase the aggregate supply along with it, then the result will be that in the long run, your inflation rate will remain constant at its level. INF will remain on the INF star but the real GDP or aggregate output or economic activity will be 0 to 1. So, we call it non-inflationary economic growth. Thank you.