Demand side shocks
DEMAND PULL INFLATION Demand management
policies
3/30/2023 30
, DEMAND PULL INFLATION THE THEORY
EXPLAINED
“Too much money chasing too few goods…”
1. As firms try to increase output they are likely to experience a
shortage in labour and supply (labour and supply bottlenecks)
2. As the economy moves closer to full employment, supply
becomes relatively inelastic
3. Firms may respond by poaching staff from other firms, offering
them higher wages (creates wage inflation- cost of production-
cost push inflation)
4. Rising demand enables firms to increase their prices- firms
see an opportunity to increase profit margins. 2023 term:
Greedflation!
5. Once full employment is reached, output has reached its
maximum point, further demands will only increase the price
level further
3/30/2023 31
DEMAND PULL INFLATION Demand management
policies
3/30/2023 30
, DEMAND PULL INFLATION THE THEORY
EXPLAINED
“Too much money chasing too few goods…”
1. As firms try to increase output they are likely to experience a
shortage in labour and supply (labour and supply bottlenecks)
2. As the economy moves closer to full employment, supply
becomes relatively inelastic
3. Firms may respond by poaching staff from other firms, offering
them higher wages (creates wage inflation- cost of production-
cost push inflation)
4. Rising demand enables firms to increase their prices- firms
see an opportunity to increase profit margins. 2023 term:
Greedflation!
5. Once full employment is reached, output has reached its
maximum point, further demands will only increase the price
level further
3/30/2023 31
