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Using a  aggregate supply and demand diagram, a shift to the left of the SRAS curve from SRAS₁ to SRAS₂ shows a movement along the AD curve. As costs of production rise, there may be an increase in unemployment and prices may rise to P₂ in order to cover these higher costs. A higher price level in the economy caused by the shift in supply will lead consumers to demand less.

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G5 - Discuss why Cost-push inflation is harmful than Demand-pull inflation????

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G5 - Discuss why Cost-push inflation is harmful than Demand-pull inflation????

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G2 - Cost-push inflation Model & Interpretation

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G2 - Cost-push inflation Model & Interpretation

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G3 - Causes of Demand-pull Inflation????

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G3 - Causes of Demand-pull Inflation????

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G1 - Demand-pull Inflation Model & Interpretation

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G1 - Demand-pull Inflation Model & Interpretation

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Demand-pull inflation is a tenet of Keynesian economics that describes the effects of an imbalance in aggregate supply and demand.

When the aggregate demand in an economy strongly outweighs the aggregate supply, prices go up. This is the most common cause of inflation.

Generally, inflation occurs when AD is increasing faster than AS.

Characteristics:
- High economic growth
- Excess demand and too much money chasing too few goods.
- The economy is at full employment/full capacity.
- The economy will be growing at a rate faster than the long-run trend rate.
- A falling unemployment rate.

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1. Growing economy
2. Increasing export demand
3. Government spending
4. Inflation expectations
5. More money in the system

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The cost increase will cause a negative shift in the SRAS curve. This causes prices to rise as costs push the supply curve up the aggregate demand curve. The diagram shows the impact of production costs rising over time, leading to a period of stagflation for the economy (inflation and negative growth).

1. Higher Price of Commodities
2. Imported Inflation
3. Higher wages
4. Higher Taxes
5. Higher food prices
6. Increased monopoly
higher costs of production decrease aggregate supply, or the overall amount of production