Demand-pull Inflation—Demand-pull inflation arises when there is an excess of demand for goods over their supply. When there is persistent increase in demand and supply does not increase proportionately, then price tends to rise. The con-cept of demand-pull inflation is normally explained when there is full employment in an economy (it is because, in a full employments tuation resources i are fully employed and aggregate supply cannot i increase).
The main causes of demand-pull inflation are :
- Growth in Black Money—Growth in unaccounted money leads to more demand for goods.
- Increase in Population—Increase in population raises the number of consumers in the market.
This, in turn, raises demand for goods.
- Increase in Money Supply—Increase in money supply by the RBI raises the money in circula¬tion, which in turn raises demand for goods.
- Increase in Disposable Income of the Consumer—When the common man has more money at his disposal, he will demand more goods.
- Increase in Public Expenditure—Increase in government expenditure is a major factor raising demand for goods.