For example, the inflation rate averaged 15% between 1973 and 1981, and 6% between 1981 and 1990 (Begg, p.274). ... The demand-pull theory shows that inflation is caused by higher aggregate demand (AD shifts right). ... However, this rise in AD will only cause inflation if the aggregate supply (AS) curve isn't horizontal. ... With cost-push inflation, higher prices are caused by rising costs, so the AS curve shifts left. ... This cycle of cost-push inflation is unlikely to continue without increased aggregate demand, as firms would be unable to keep on increasing their prices without a...

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4) What happens if aggregate demand is too low to aggregate supply? ... It is related with aggregate demand and aggregate supply. By aggregate demand it means the total amount of spending in the economy, whether by consumers, by customers outside the country for our export. ... Unemployment and recession may occur if aggregate demand is too low relative to aggregate supply. ... An example is the refining of crude oil to produce petrol. ...

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