

Demand pull inflation

Demand pull inflation Definition

Demand-pull inflation arises where there is an increase in aggregate demand in an economy relative to 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 spending 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.

Ask a Question

Newsletter cover