Understanding Demand Pull Inflation

Peter Jordan explains demand pull inflation, focusing on its association with aggregate demand and the shift from AD1 to AD2. He discusses the positive output gap and its implications on macroeconomic objectives. The video evaluates the necessity of some inflation for growth and consumption, while highlighting the drawbacks of high inflation. Factors influencing demand pull inflation, such as consumption, investment, and government spending, are analyzed. The Keynesian perspective on spare capacity and its effect on inflation is also covered.

What is the primary cause of demand pull inflation?

• An increase in unemployment

• A decrease in aggregate supply

• A shift in aggregate demand

• A reduction in government spending

In the context of demand pull inflation, what does a positive output gap indicate?

• The economy is exceeding its long-term growth trend

• The economy is experiencing deflation

• The economy is at its long-term growth trend

• The economy is below its long-term growth trend

Why is some level of inflation considered beneficial?

• It reduces consumption

• It discourages investment

• It arises from economic growth

• It increases the real value of debt

Which factor does NOT contribute to a shift in aggregate demand?

• Unemployment rate

• Government spending

• Investment

• Consumption

What happens to the long run aggregate supply curve if demand pull inflation is driven by consumption?

• It shifts to the right

• It shifts to the left

• It remains fixed

• It becomes perfectly elastic

How does investment-driven demand pull inflation affect the economy in the long term?

• It decreases real output

• It leads to higher inflation

• It increases the productive capacity

• It reduces the productive capacity

What is the effect of spare capacity on demand pull inflation according to the Keynesian AS curve?

• It increases inflation

• It decreases inflation

• It causes deflation

• It prevents inflationary changes