Demand Pull Inflation Diagram Lras. Phillips curve and aggregate demand. Shifts in aggregate demand.
As aggregate demand increases unemployment decreases as more workers are hired real gdp output increases and the price level increases. The last time this happened to any great extent in the uk economy was in the late 1980s. As aggregate demand increases from ad1 to ad4 the price level and real gdp increases.
The last time this happened to any great extent in the uk economy was in the late 1980s.
As the inflation is occurred by rise of demand so it is called demand pull inflation. Demand pull inflation can be shown in a diagram such as the one below. Typically demand pull inflation becomes a threat when an economy has experienced a strong boom with gdp rising faster than the long run trend growth of potential gdp. This video goes over an example of demand pull inflation and shows how it works on the aggregate supply aggregate demand graph more information at.
