Question

. “My boss sent me back to return the milk – it’s too expensive, ʺ said the driver for middle –
class american family at the checkout counter of a supermarket. ... the U.S is enjoying an
unprecedented economic boom. Explain critically how this story describes demand pull inflation

Answer 1

What is demand pull inflation?

It is the pressure on prices which causes shortage of supply. In the condition of demand pull inflation, aggregate demand rises than the aggregate supply. In this period, GDP rises and unemployment falls.

This is the most common cause of inflation

What are the causes of demand pull inflation?

There can be main five reasons of demand pull inflation-

• Boost in growth of the economy- When there is a rapid increase in growth of the economy, consumers demand more as they spend more. As there will be more demand, higher will be the prices.
• Government spends freely and prices go up.

• Increasing cost of imported goods, also increases the domestic demand.
• Cost push inflation- It is the substantial increase in the cost of the goods and services.
• Rise in exports.

In the given case, as it is given that "the U.S. is enjoying an unprecedented economic boom".

As Demand Pull Inflation there is a boost in growth of the economy, because of which demand increases as consumer spends which increases the prices.

And in this case also, prices of milk have risen too much which becomes unaffordable.

This is the situation of demand pull inflation as prices increase because of many factors.

Here the reason can be a boost in economic growth as it is given in the question, because of which prices rise.