Question

Explain graphically the policies to deal with demand-pull inflation.

Answer 1

Answer) demand pull inflation refers to the situation whereby an increase in the demand result in the surge of inflation rate in the economy. For instance, when the demand shifts to the right-hand side the level of prices and the output level rises leading to inflation.

Demand pull inflation could occur due to:

1. Rise in the population level.
2. Rise in the level of income.
3. Increase in the expected price levels.
4. Increase in the government expenditure.
5. Changes in the taste and preferences of the consumer.