Answer to Question #146630 in Economics for ghost

Question

Explain, with the aid of a graph, the demand‐pull inflation. In your answer, consider the following:
 Graphical illustration of the demand‐pull inflation (5)
 Provide any three of your own examples/scenario that might cause the demand‐pull
inflation (6)
 Recommend the policy tools to use in order to curb each type of inflation mentioned
above (4)

Answer 1

Demand-pull inflation is the upward pressure on prices that follows a shortage in aggregate supply.

So, examples include increasing the interest rate, lowering government spending or raising taxes, then the shortage in aggregate supply and the resulting demand-pull inflation may occur.

To counter demand pull inflation, governments, and central banks would have to implement a tight monetary and fiscal policy.