Final answer:
Cost-push inflation occurs when production costs rise, while demand-pull inflation happens when consumer demand exceeds supply. The impact of each depends on the context, with cost-push inflation potentially hurting consumers and businesses, and demand-pull inflation indicating a healthy economy.
Step-by-step explanation:
Cost-push inflation occurs when the costs of production increase, leading to higher prices for goods and services. This can happen due to factors such as increases in wages, raw material costs, or taxes. On the other hand, demand-pull inflation happens when consumer demand exceeds the supply of goods and services, causing prices to rise. This can occur when there is strong economic growth, increased consumer spending, or expansionary fiscal or monetary policies.
As for which is worse, it depends on the specific context. Cost-push inflation can have negative effects on both consumers and producers. Higher prices can reduce consumers' purchasing power and lower their standard of living. Additionally, businesses may face higher production costs, leading to reduced profits, job cuts, or even business closures. Demand-pull inflation, while also leading to higher prices, can be a sign of a healthy and growing economy. Increased consumer spending can stimulate business activity and job creation. However, if demand-pull inflation becomes too high and exceeds the capacity of the economy, it can lead to imbalances, such as shortages of goods and services, which can result in higher prices and reduced consumer welfare.