What is Demand-Pull inflation?

What Is Demand-Pull Inflation?

What Are the Causes of Demand-Pull Inflation?

What Are the Examples of Demand-Pull Inflation?

FAQs About Demand-Pull Inflation

What are the common effects of demand-pull inflation? up-arrow

Following are some noteworthy negative effects that take place during demand-pull inflation in an economy:

  • Weakens purchasing power of customers
  • Upsurges cost of borrowing
  • Influences currency rates
  • An overall increase in the cost of living
  • The sustained growth of inflation

What are the steps taken by the government to deal with demand-pull inflation? up-arrow

Governments and public banks work together to tackle a demand-pull inflationary situation and adopt some strict fiscal policies. These policies may include increasing taxes, reducing government spending, etc.

What are the benefits of demand-pull inflation? up-arrow

In addition to demerits, there are advantages of demand-pull inflation, as stated below:

  • Enhances economic growth
  • Increase in wages
  • Benefits borrowers
  • Help lenders

How is demand-pull inflation associated with GDP? up-arrow

Generally, a demand-pull inflationary situation occurs with a positive gross domestic product (GDP) gap as actual GDP surpasses its potential only if the total amount of spending is progressive.

How does the Reserve Bank of India (RBI) manage demand-pull inflation? up-arrow

The Reserve Bank of India (RBI) increases the rates like cash reserve ratio (CRR), statutory liquidity ratio (SLR), repo rate and reverse repo rate in order to influence the supply of money in an economy and control the demand-pull inflation.