Download Demand Pull Inflation

Economic Problem
Cyclical unemployment, Recession/Stagnant
Economy
Expansionary Policies
Fiscal Policies
Increase Government
Spending
Decrease Taxes
This is when the economy is slow and needs
to speed up
Types of Inflation
Demand Pull Inflation

This inflation occurs when household,
business, government and foreign
industries collectively try to purchase
more output than the economy is
capable of producing. In effect, the
demand side of the aggregate market is
pulling the price level higher
Demand Pull Inflation
As aggregate demand
Increases then the general
price level rises
 When total demand
exceeds total supply demand
pull inflation occurs
 If the economy is close to full
capacity the effects of demand
pull inflation will be greater
S1

.B
.A
D2
D1
Real GDP
Cost Push Inflation
 Inflation attributed to decreases in supply,
primarily due to increases in production
costs
Cost Push Inflation
S3
As cost rise it cause the
aggregate supply curve to
shift left so less is supplied
at each price level
 Each time the aggregate
supply curve shifts left the
price rises causing inflation
S2

S1
.C
.B
$
.A
D1
Qs
Economic Problem
Inflation
(Demand Pull or Cost Push)
Contractionary Policies
Fiscal Policies
Decrease Government
Spending
Increase Taxes
This is when the economy is going to fast and needs
to slow down