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Demand Pull Inflation

Some events occur and the economy experiences a demand-pull inflation.

a. List the events that might cause demand-­pull inflation.

b. Describe the initial effects of a demand-pull inflation.

c. Describe what happens as a demand-pull inflation spiral proceeds.

Figure attached**


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Demand Pull Inflation:

Inflation is defined as a fall in the value of money or an instance where there is a rise in prices. It is the continuing increase in the prices of goods On the other hand demand pull inflation refers to the state whereby inflation is caused by the aggregate demand. It is also referred to as "too much money chasing too few goods". When the demand is high in the economy then this means that producers benefit a lot since they raise prices hence achieve higher profits since they are aware that demand is more than supply. This type of inflation arises due to either an increase in the government purchase meaning there is an increasing demand for goods by the government or if there is an increase in the level of prices in the rest of the world. The major factor or cause ...

Solution Summary

Demand Pull Inflation is assessed.