What is the relationship between aggregated demand and inflation?

The relationship between aggregated demand and inflation is an effect that has general or combined types of demand in the economy to the inflation level. The demand comes from many sources in the economy, including the demand and consumption of goods and services by individual consumers within a specific economy and consumption of companies. The government and external demand resulting from external sources are also factors. All this contributes to the connection between aggregated demand and inflation in the economy.

Consumption individuals make up an important percentage of aggregated demand in the economy. In addition, this is the demand of companies in the form of supplies for its businesses and materials for the construction of new plants and other facilities. The government also contributes to aggregated demand in the economy through its expenditure on goods and services for the general public and government officials and workers. AGGPS contributions to ego demand from external sources include exports to other countries and consumers outside the country.

The total amount of all these forms of demand forms the model of aggregated demand and the level of demand usually differs at different points of calculations of the business cycle. The desirable balance between aggregated demand and supply in the economy is the level where the demand level is stable with the level of supply. This connection between aggregated demand and inflation can be seen where the level of aggregated demand grows faster than the supply of goods and services.

The connection between aggregated demand and inflation stems from the fact that excessive demand for limited goods and services leads to a situation where the value of these goods and services will significantly increase as a result of the burden of the summary demand. The result of such a captured balance of demand and equation supply is a stable level of inflation, while the supply still decreases below the rate of demand. In such a situation, the government may represent this imbalance through the application of targeted fiscal policies. The main cash authority within this economy can also apply your hairTent politicians in an effort to reverse the inflation trend.

Illustration of connection between aggregated demand and inflation can be seen in an effect that has increased aggregated demands for the orange price. Assuming a basket of orange usually costs about $ 25 (USD) when the demand level is constant, this level changes when demand outweighs the supply. For example, if the aggregated demand for orange increases to a level that exceeds the offer, the price for the same basket of orange could increase to $ 50, which is significantly more than the previous price.