Demand-pull inflation
Definition. Demand pull inflation is a sustained rise in the general price level caused by excess aggregate demand in the economy, which pulls prices up as buyers compete for limited output. It arises when aggregate demand grows faster than the economy productive capacity, especially near full employment.
Any factor that raises consumption, investment, government spending or net exports can trigger it. As the economy nears capacity, further increases in demand spill over more into prices than output.
This term belongs to Aggregate Demand and Aggregate Supply in A Level Economics. Read the full chapter for the diagrams, worked examples and exam technique.
Want to use demand-pull inflation for marks in the exam? Learn it in class or message the team.