Ministry of education tashkent financial institute

Conventional Demand-Pull Inflation:

The market power theory of inflation represents one extreme end of inflation. According to this theory inflation exists even when there is no excess in demand. On the other end, the conventional demand-pull theorists believed that the only cause of inflation is the excess of aggregate demand over aggregate supply. In full employment equilibrium condition, when demand increases, inflation becomes unavoidable. In addition to full employment condition, the economy reaches to its maximum production capacity. At this point, the supply of goods and services cannot be increased further while the demand of products and services increases rapidly. Due to this imbalance between demand and supply, inflation takes place in the economy.³