Causes of inflation 

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  • Created by: tisha
  • Created on: 05-05-12 18:56

Demand Pull Inflation

Demand Pull Inflation

Demand pull inflation is inflation caused by excess demand in the economy.          This is caused when AD in economy rises. The supply of goods and services can't match up to the new rise in demand, so their prices are pulled up. This extra demand usually comes from consumers but it could also come from firms (demanding more capital goods for investment), consumers from foreign countries and the goverment spending more on health and social protection.Demand pull inflation is normally caused when the economy is near full employment and this is why supply cannot rise to meet demand.

However..some economist believe that demand cannot rise unless the supply money financing it rises to- this is monetary policy: the money supply grows more quickly than the supply of goods and services, pulling prices up.

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