ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -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-2: -Demand-pull inflation creates higher prices, because it shifts the demand curve to the right.

Detailed explanation-3: -The aggregate demand curve tends to shift to the left when total consumer spending declines. 2 Consumers might spend less because the cost of living is rising or because government taxes have increased. Consumers may decide to spend less and save more if they expect prices to rise in the future.

Detailed explanation-4: -Inflation rate ( ) An expansion of government spending, as well as a program of tax cuts, shifts the AD curve to the right. This reduces unemployment, but since the economy is in the flat portion of the AS curve at equilibrium E1, it has little effect on inflation.