ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Demand-pull inflation explains rising prices in an economy as the result of increased aggregate demand that surpasses supply. As consumers demand more given limited supply, prices are bid higher.

Detailed explanation-2: -Demand-pull inflation is when there is an increase in aggregate demand, and the supply remains the same or decreases. When supply cannot meet growing demand, prices for goods and services are pulled higher.

Detailed explanation-3: -If aggregate demand increases to AD 2, in the short run, both real GDP and the price level rise. If aggregate demand decreases to AD 3, in the short run, both real GDP and the price level fall. A line drawn through points A, B, and C traces out the short-run aggregate supply curve SRAS.

Detailed explanation-4: -In the most general sense (and assuming ceteris paribus conditions), an increase in aggregate demand corresponds with an increase in the price level; conversely, a decrease in aggregate demand corresponds with a lower price level.

Detailed explanation-5: -Demand pull inflation arises when the aggregate demand becomes more than the aggregate supply in the economy. Cost pull inflation occurs when aggregate demand remains the same but there is a decline in aggregate supply due to external factors that cause rise in price levels.