Question

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

Answer 1

Demand pull inflation

Definition  : Demand pull inflation occurs when aggregate demand (AD) or total demand in market is much higher than the aggregate supply in market . Due to this price will rise . This inflation impact the entire economy of country and not just the individual good & services of a market

Causes of demand pull inflation

There is five main reason that causes demand pull inflation

It’ usually arrives from drastic increase of demand for a product

{a}.  Growth of economy

When there is great upliftment in the economy of people and businesses  , they feel more intended towards spending there money

Therefore there is inclination towards saving less of money and borrowing more of money . This therefore give demand rise and people have problem in sudden increase Demand , which means higher price

{b} Growth of export

A sudden rise in exports forces can happen due to exchange rate of depreciation that causes aggregate demand

People don’t buy much of imports and due to this exports from country decreases

{c} Government spending

When government tries to help the country come up from recession , it usually provide the country with infrastructure , and make various investment which can then lead to rise in prices

{d} Growth of monetary

When there is too much money in the country, and notes are printed more , in popular definition known as “too much money chasing “ can have a rise in prices

{e} future inflation

When future inflation may be announced it causes problem in consumer and a demand for a particular product demand rices price also rises causing   Demand pull inflation

  

So in the above story there could be any reason that causes rise in the price level of milk because of which the person is not able to buy the milk as it is very expensive for them. Therefore this describes that demand pull inflation causes rise in price of goods which affect the living of country people