Demand-pull inflation

Demand-pull inflation
Aggregate Demand increasing faster than production.

Demand-pull inflation is asserted to arise when aggregate demand in an economy outpaces aggregate supply. It involves inflation rising as real gross domestic product rises and unemployment falls, as the economy moves along the Phillips curve. This is commonly described as "too much money chasing too few goods". More accurately, it should be described as involving "too much money spent chasing too few goods", since only money that is spent on goods and services can cause inflation. This would not be expected to persist over time due to increases in supply, unless the economy is already at a full employment level.

The term demand-pull inflation is mostly associated with Keynesian economics.

How it happens

According to Keynesian theory, the more firms will employ people, the more people are employed, and the higher aggregate demand (AD) will become. This greater demand will make firms employ more people in order to output more. Due to capacity constraints, this increase in output will eventually become so small that the price of the good will rise. At first, unemployment will go down, shifting AD1 to AD2, which increases demand (noted as "Y") by (Y2 - Y1). This increase in demand means more workers are needed, and then AD will be shifted from AD2 to AD3, but this time much less is produced than in the previous shift, but the price level has risen from P2 to P3, a much higher increase in price than in the previous shift. This increase in price is called inflation.

See also

External links

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Look at other dictionaries:

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  • Demand-Pull Inflation — A term used in Keynesian economics to describe the scenario that occurs when price levels rise because of an imbalance in the aggregate supply and demand. When the aggregate demand in an economy strongly outweighs the aggregate supply, prices… …   Investment dictionary

  • demand-pull inflation — paklausos sukelta infliacija statusas Aprobuotas sritis Ekonomika apibrėžtis Infliacija, lemiama visuminės paklausos didėjimo. atitikmenys: angl. demand pull inflation šaltinis Lietuvos banko Ekonomikos departamentas …   Lithuanian dictionary (lietuvių žodynas)

  • demand-pull inflation — demand′ pull infla′tion n. ecn bus inflation in which rising demand results in a rise in prices Compare cost push inflation • Etymology: 1955–60 …   From formal English to slang

  • demand-pull inflation —  Inflation caused by excessive demand, usually brought on by overly stimulative fiscal or monetary policies …   American business jargon

  • demand-pull inflation — noun inflation caused by an increase in demand or in the supply of money • Hypernyms: ↑inflation, ↑rising prices * * * /di mand pool , mahnd / inflation in which rising demand results in a rise in prices. Also called buyers inflation. Cf. cost… …   Useful english dictionary

  • demand-pull inflation — /di mand pool , mahnd / inflation in which rising demand results in a rise in prices. Also called buyers inflation. Cf. cost push inflation. * * * …   Universalium

  • demand-pull inflation — A rise in prices caused by an excess of demand over supply in the economy as a whole. When the labour force and all resources are fully employed extra demand will only disappear as a result of rising prices. Compare cost push inflation …   Big dictionary of business and management

  • demand-pull inflation — /dəmænd ˌpʊl ɪnˈfleɪʃən / (say duhmand .pool in flayshuhn) noun Economics See inflation (def. 2b). Compare cost push inflation …  

  • demand-pull inflation — increase in prices due to demand for merchandise and services which exceeds their supply …   English contemporary dictionary

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