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September 21, 2018 

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DEMAND-PULL INFLATION: Demand-pull inflation places responsibility for inflation squarely on the shoulders of increases in aggregate demand. This type of inflation results when the four macroeconomic sectors (household, business, government, and foreign) collectively try to purchase more output that the economy is capable of producing. In general, increasing aggregate demand means buyers want more production than the economy is able to provide. Then end result is that buyers bid up the price of existing production. The extra demand "pulls" the price level higher. You might want to compare demand-pull inflation with cost-push inflation.

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Lesson 8: Market Shocks | Unit 1: Adjustments Page: 2 of 20

Topic: Three Questions <=PAGE BACK | PAGE NEXT=>

There are three basic questions about market changes which we need to ask in this lesson.

Three questions:

  • What causes the market to move? What shocks the market? What disrupts the market from it's existing equilibrium?
  • What are the consequences of the move to the market? What is the price and quantity at the new market equilibrium?
  • Is the market move good or bad? How does the new equilibrium compare with the old? Is the price higher or lower? Is the quantity greater or less? Three Questions

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PSYCHOLOGICAL LAW

A principle of consumption behavior proposed by John Maynard Keynes stating that people have the propensity to spend a large fraction, but not all, of any additional income received. This psychological law is not so much a principle of psychology as an economic observation about consumption spending and is related to the notion of effective demand.

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Today, you are likely to spend a great deal of time browsing about a thrift store hoping to buy either clothing for your kitty cats or a set of luggage without wheels. Be on the lookout for small children selling products door-to-door.
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Approximately three-fourths of the U.S. paper currency in circular contains traces of cocaine.
"Man is born to live, not to prepare for life. "

-- Boris Pasternak, writer

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