# R10 | google/gemini-3.6-flash | run 1

## Prompt

What causes inflation, and what tools do central banks use to control it? Summarize and cite authoritative sources.

## Response

Inflation is the broad, sustained rise in price levels across an economy, resulting in a loss of currency purchasing power over time [IMF Inflation Basics](https://vertexaisearch.cloud.google.com/grounding-api-redirect/AUZIYQF-KKEq9qhQvkVr42G4thB-qF0Wwv0TOSKts9I8aIRhGd3PT72_lHKVlRHS7i-WN3n9UdDOB5Mp3Z5U7Ixy1hXD3NU5N3eAzpnOQr-cdZ1JAGTmuzXPFUWpXlDNdAazuSvTbCdla_vXy91iVJG6_SY1kj9ogTu1SY1u96e1YOCyMvftMoMjl1--g4Hf). It is primarily caused by demand exceeding productive capacity, supply disruptions raising production costs, excessive expansion of the money supply, or elevated price expectations [Stanford Policy Analysis](https://vertexaisearch.cloud.google.com/grounding-api-redirect/AUZIYQFOqbDVLrzzvigXQr-ByVfmvlf9wxXN4G0bTRDHDk_DYpjQnaajfcuKSfFNRcKmnFXvlCiY_Jg12aGhK-N06rTe2A5N5ItG4DTTV_Uqj7lxpAHxlP2TSh6g_XcCgIbg7UEeNfaEvo_lPfGZsGXqiACWx_SRbPW_UKvZJQ==). Central banks manage inflation using contractionary monetary policy tools—such as raising interest rates and reducing financial liquidity—to cool economic demand and restore price stability [Federal Reserve Overview](https://vertexaisearch.cloud.google.com/grounding-api-redirect/AUZIYQGJuqxOM5fx8La8Q0rJgx-1ofk7q5irXdSVNrDXdW0hlIOwuBoZWx4Drn7stWKTRb6Xb-0SFHIDExSJEbFV4dmojB4611Vk6iXTa_1KVkx0JV_V6rxXECngrDXkYrMRU9R3o_L9rtewPqDR16nnXw==).

## Key Causes of Inflation

Economists classify the root causes of inflation based on the underlying economic pressures driving price increases [IMF Inflation Basics](https://vertexaisearch.cloud.google.com/grounding-api-redirect/AUZIYQF-KKEq9qhQvkVr42G4thB-qF0Wwv0TOSKts9I8aIRhGd3PT72_lHKVlRHS7i-WN3n9UdDOB5Mp3Z5U7Ixy1hXD3NU5N3eAzpnOQr-cdZ1JAGTmuzXPFUWpXlDNdAazuSvTbCdla_vXy91iVJG6_SY1kj9ogTu1SY1u96e1YOCyMvftMoMjl1--g4Hf).

- **Demand-Pull Inflation**: Occurs when overall consumer, business, and government demand for goods and services outpaces an economy's total supply capacity [IMF Inflation Basics](https://vertexaisearch.cloud.google.com/grounding-api-redirect/AUZIYQHvKZbp0z9rEK9yotMjdH-2DWkYzM8bEr2uuB2RWVXV4cc6dH-qFLHJZ82kUGkFlDFtnbY5rYaJmNPiEQQw7oMfTKhVKpv5wbOyhouBvS5EsakjnYHIQxmEAs1SoH_JArvMcDgc2KL_KJmUq13-BF2scfbU8t-5cy0=).
- **Cost-Push Inflation**: Occurs when key production inputs become scarce or expensive—such as energy, labor, or raw materials—forcing businesses to raise retail prices to protect profit margins [IMF Inflation Basics](https://vertexaisearch.cloud.google.com/grounding-api-redirect/AUZIYQF-KKEq9qhQvkVr42G4thB-qF0Wwv0TOSKts9I8aIRhGd3PT72_lHKVlRHS7i-WN3n9UdDOB5Mp3Z5U7Ixy1hXD3NU5N3eAzpnOQr-cdZ1JAGTmuzXPFUWpXlDNdAazuSvTbCdla_vXy91iVJG6_SY1kj9ogTu1SY1u96e1YOCyMvftMoMjl1--g4Hf).
- **Monetary Supply Expansion**: Occurs when the money supply grows faster than real GDP, eroding the purchasing value of each currency unit according to the quantity theory of money [Stanford Policy Analysis](https://vertexaisearch.cloud.google.com/grounding-api-redirect/AUZIYQFOqbDVLrzzvigXQr-ByVfmvlf9wxXN4G0bTRDHDk_DYpjQnaajfcuKSfFNRcKmnFXvlCiY_Jg12aGhK-N06rTe2A5N5ItG4DTTV_Uqj7lxpAHxlP2TSh6g_XcCgIbg7UEeNfaEvo_lPfGZsGXqiACWx_SRbPW_UKvZJQ==).
- **Built-In Inflation**: Driven by adaptive public expectations, where workers demand higher wages to keep up with living costs and businesses raise prices to cover higher payrolls, creating a self-reinforcing wage-price cycle [IMF Inflation Basics](https://vertexaisearch.cloud.google.com/grounding-api-redirect/AUZIYQHvKZbp0z9rEK9yotMjdH-2DWkYzM8bEr2uuB2RWVXV4cc6dH-qFLHJZ82kUGkFlDFtnbY5rYaJmNPiEQQw7oMfTKhVKpv5wbOyhouBvS5EsakjnYHIQxmEAs1SoH_JArvMcDgc2KL_KJmUq13-BF2scfbU8t-5cy0=).

| Inflation Type | Primary Cause | Economic Effect |
| --- | --- | --- |
| **Demand-Pull** | Excess consumer spending or fiscal stimulus | Bids up prices on scarce goods and services [IMF Inflation Basics](https://vertexaisearch.cloud.google.com/grounding-api-redirect/AUZIYQHvKZbp0z9rEK9yotMjdH-2DWk
