Demand pull inflation

Pull inflation

process

(1) in the region of AS Cairns, this time idle resources, lower production, increase in the total demand is not It will cause prices to rise.

(2) in the middle region of AS, AS regular lines, increasing the overall demand results in higher prices. It is due to labor, raw materials, production equipment and other issues, leading to higher costs. I.e. supply bottlenecks. The inflation is called a bottleneck region inflation.

(3) in the region of AS classical, full employment, and resources are fully utilized. Overall demand continues to increase, it will only lead to higher prices, while output unchanged.

form

When output is below full employment levels, increased demand has led to two possible outcomes:

(1) production increased but the price level unchanged, due to the bottlenecks, increase effective demand causes an increase in production, but also lead to price increases, inflation appears half.

(2) When production reached full employment, due to the constraints of production capacity, total demand growth is no longer cause an increase in production, but only in the same proportion lead to price level growth, the real inflation.