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In your own words, describe the conditions in which “Demand-Pull Inflation” occurs.

In your own words, describe the conditions in which “Demand-Pull Inflation” occurs.

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Answer #1

Ans) Demand pull inflation is when the aggregate demand outstrips aggregate supply, which leads to rise in price. This implies that too much money is chasing too few goods.

Demand pull inflation can be caused due to various reasons÷

  • Lower interest rate ÷ which causes the consumer spending to increase. It also increases investment.
  • Economic growth. Which gives people a confidence to spend money. They believe that they will continue to earn good and hence they spend more.
  • Large scale government spending also drives the price up.

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