Three main causes of inflation

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THREE MAIN CAUSES OFÂ INFLATION

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ABOUT Demand pull inflation When there is an increase in aggregate monetary demands it results in demand pull inflation. This can be caused by an increase in one or more of the components of aggregate demand (AD) and where aggregate supply (AS) is slow to adjust. The causes are demand shocks, like: •Earning rising above productivity. •Reduction in interest rates and cheaper credits. •Excessive rate of public sector borrowing. •Creating equity withdrawal and a positive wealth effect. •Changes in savings ratio.

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