Demand-Pull Infation.

 

What Is Demand-Pull Inflation?

Demand-pull inflation is the upward pressure on prices that follows a shortage in supply. Economists describe it as "too many dollars chasing too few goods."

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.

Understanding Demand-Pull Inflation

The term demand-pull inflation usually describes a widespread phenomenon. That is, when consumer demand outpaces the available supply of many types of consumer goods, demand-pull inflation sets in, forcing an overall increase in the cost of living.

KEY TAKEAWAYS

  • When demand surpasses supply, higher prices are the result. This is demand-pull inflation.
  • A low unemployment rate is unquestionably good in general, but it can cause inflation because more people have more disposable income.
  • Increased government spending is good for the economy, too, but it can lead to scarcity in some goods and inflation will follow.

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