ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -2. Real Balances. When inflation increases, real spending decreases as the value of money decreases. This change in inflation shifts Aggregate Demand to the left/decreases.

Detailed explanation-2: -Demand-pull inflation Aggregate demand might increase because there is an increase in spending by consumers, businesses or government, or an increase in net exports.

Detailed explanation-3: -The AD-AS (aggregate demand-aggregate supply) model is a way of illustrating national income determination and changes in the price level. We can use this to illustrate phases of the business cycle and how different events can lead to changes in two of our key macroeconomic indicators: real GDP and inflation.

Detailed explanation-4: -Inflation Expectations Consumers who anticipate that inflation will increase or prices will rise tend to make immediate purchases leading to rises in aggregate demand. But if consumers believe prices will fall in the future, aggregate demand typically falls.