What is demand pull inflation?

Inflation is a sustained increase in the average price level in a given time period.
Demand pull inflation refers to the economic scenario in which there is an increase in aggregate demand. This increase can be potentially caused the government's manipulation of taxes and government expenditure or the central bank's control of interest rates and the money supply.
This can be depicted on a diagram by a rightward shift in an aggregate demand (AD) curve. The increase in AD results in a subsequent increase in the economy's real output and average price level. The increase in average price level is known as the inflation.

DR

Related Economics GCSE answers

All answers ▸

Explain what a balance of trade deficit is


With reference to a poverty trap (poverty cycle), explain how “investing in human development is crucial to ... reducing poverty”


Why might expansionary demand side policies not always be effective in promoting economic growth?


What is excess supply?