What Are The Causes Of Demand Pull Inflation?

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Causes of demand pull inflation
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Lily James answered

Demand Pull Inflation is a kind of Inflation. The cause for this kind of inflation is that the aggregate demand in an economy exceeds the aggregate supply. This concept is associated with the Keynesian economics.

The Real GDP rises in this case and the inflation also rises. The unemployment falls as well. In economics term, it is referred to as "too much money chasing too few goods. "

The theory behind this kind of Inflation is that when more firms will employ people, the unemployment rate will fall. Subsequently, the aggregate demand will become higher. Due to rising demand more and more people will be employed so that production can be maximized. Eventually, this increase in output will become smaller and the price of goods will rise due to capacity constraints.

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