ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The excess demand puts upward pressure on prices across a broad range of goods and services and ultimately leads to an increase in inflation – that is, it ‘pulls’ inflation higher.

Detailed explanation-2: -Too little supply or too much demand can mean higher prices for everybody. Demand-pull inflation is when growing demand for goods or services meets insufficient supply, which drives prices higher.

Detailed explanation-3: -Consumers have more discretionary income to spend on goods and services. When that increases faster than supply, it creates inflation. For example, tax breaks for mortgage interest rates increased demand for housing. Government sponsorship of mortgage guarantors Fannie Mae and Freddie Mac also stimulated demand.

Detailed explanation-4: -When the aggregate expenditure exceeds the aggregate supply, there is a shortage of goods and services in the economy. This leads to an increase in the general price level of goods and services leading to demand-pull inflation.

Detailed explanation-5: -Inflation created by the pressure of excess demand in the market is called demand-pull inflation because the price of a good in the competitive market is determined by the equality of demand and supply.