ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Demand-pull inflation is a tenet of Keynesian economics that describes the effects of an imbalance in aggregate supply and demand. When the aggregate demand in an economy strongly outweighs the aggregate supply, prices go up. This is the most common cause of inflation.

Detailed explanation-2: -When Aggregate demand is more than Aggregate supply, then the planned inventory would fall below the desired level. To bring back the Inventory at the desired level, the producers expand the output More output means more income.

Detailed explanation-3: -This increase in aggregate demand puts pressure on domestic production capacity, and increases the scope for domestic firms to raise their prices. These price increases contribute indirectly to inflation through the demand-pull channel.

Detailed explanation-4: -The aggregate supply curve shifts to the left as the price of key inputs rises, making a combination of lower output, higher unemployment, and higher inflation possible. When an economy experiences stagnant growth and high inflation at the same time it is referred to as stagflation.