Answer to Question #147570 in Economics for Milton

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

 Provide any three of your own examples/scenario that might cause the demand‐pull inflation

 Recommend the policy tools to use in order to curb each type of inflation mentioned above

Answer 1

Demand-pull inflation is the upward pressure on prices that follows a sharp increase in aggregate demand.

So, examples include decrease in the interest rate, lowering taxes or increasing government spending.

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