Demand-pull inflation, Managerial Economics

Assignment Help:

Demand-pull inflation is when aggregate demand exceeds the value of output (measured in constant prices) at full employment.  The excess demand of goods and services cannot be met in real terms and therefore is met by rises in the prices of goods.  Demand-pull inflation could be caused by:

  • Increases in general level of demand of goods and services. A rise in aggregate demand in a situation of nearly full employment will create excess demand in may individual markets, and prices will be bid upward. The rise in demand for goods and services will cause a rise in demand for factors and their prices will be bid upward as will. Thus, inflation in the pries of both consumer goods and factors of production is caused by a rise in aggregate demand.
  • General shortage of goods and services. If there is a general shortage of commodities e.g. in times of disasters like earthquakes, floods or wars, the general level of prices will rise because of excess demand over supply.
  • Government spending: Hyper-inflation certainly rises as a result of government action. Government may finance spending though budget deficits; either resorting to the printing press to print money with which to pay bills or, what amounts to the same thing, borrowing from the central bank for this purpose. Many economists believe that all inflation is caused by increases in money supply.

Monetarist economists believe that "inflation is always and everywhere a monetary phenomenon in the sense that it can only be produced by a more rapid increase in the quantity of money than in output" as Friedman wrote in 1970.

The monetarist's theory is based upon the identity:

                        M x V = P x T

And thus this was turned into a theory by assuming that V and T are constant.  Thus, we would obtain the formula

                        MV = PT


Related Discussions:- Demand-pull inflation

Chapter one, question 1, Managerial Economics

question 1, Managerial Economics

Features of planned economy, Features of Planned Economy The command e...

Features of Planned Economy The command economies relies exclusively on the state.  The government will decide what is made, how it is made, how much is made and how distribut

Calculate the equal amounts of capital and labor, The production function o...

The production function of the personal computers for DISK Company is given by Q = 10 KL where Q is the number of computers produced per day, K s the hours of machine time,

Amount of labor , One lumber producer may locate a plant in the same area....

One lumber producer may locate a plant in the same area.  If it does, there will be more competition for labor and the labor supply function facing Northern will shift to

Occurrence of stagflation , Occurrence of Stagflation Two possible theo...

Occurrence of Stagflation Two possible theoretical explanations can be given for the occurrence of stagflation almost all over the world. The first explanation follows directly

Briefly explain the importance of forecasting for managers, Question: i...

Question: i) Briefly explain the importance of forecasting for managers? ii) To what extent will managers rely on surveys in business forecasting? iii) What do you mea

how many push mowers will ann rent, Ann owns a lawn-mowing company. She ha...

Ann owns a lawn-mowing company. She has 400 lawns she requires to cut every week. Her weekly revenue from these 400 lawns is $20,000. Given an 18-inch-deck push mower, a laborer ca

#Principles and Practicices of Management, How will you influence people to...

How will you influence people to strive willingly for group objective in your organization (target based industry)? Apply your interpersonal influence through communication process

Price-output determination under oligopoly, (Kinky Demand Curve) Short Peri...

(Kinky Demand Curve) Short Period Kinked demand curve was first used by Prof. Paul M. Sweezy to elucidate price rigidity under oligopoly. In an oligopoly market, firm knows that

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd