Demand inflation

Demand inflation may be defined as a situation where aggregate demand persistently exceeds aggregate supply at current prices so that prices are being 'pulled' upwards. This type of inflation is usually associated with conditions of full employment. If there are unemployed resources available, an increase in demand can be not by bringing these resources into employment.

Supply will increase and the increase in demand will have little or no effect on the general price level. If the total demand for goods and services continues to increase, however, a full employment situation will eventually be reached and no fur­ther increases in output are possible (i.e. in the short run). Once the nation's resources are fully employed, an increase in demand must lead to an upward movement of prices.

A situation of excess demand may arise when a country is trying to achieve an export surplus, in order, perhaps, to pay off some overseas debt. Exports are inflationary because they generate income at home but reduce home supplies. Imports, of course, can make good this deficiency of home supply, but if exports are greater than imports there will be excess demand in the home market unless taxes and savings are increased to absorb the excess purchasing power.

Demand inflation might develop when, with full employment, a country tries to increase its rate of econom­ic growth. In order to increase the rate of capital accumula­tion, resources will have to be transferred from the produc­tion of consumer goods to the production of capital goods. Incomes will not fall since the factors of production are still fully employed, but the supply of the things on which these incomes may be sent will fall. Unless taxation and/or sav­ings increase there will be excess demand and rising prices.

Вариант 10

Дата добавления: 2015-07-20