(a) What is demand- pull inflation?
(b) Why is price control not suitable in checking this type of inflation?
Explanation
(a)Demand - pull theory of inflation states that changes in price level are brought about by a disequilibrium in markets caused by changes in aggregate demand. Buyers bids eagerly for goods and services, Pulling up their prices.
(b) (i) Goods are in short supply.
(ii) Buyers will prefer buying at higher price rather than going home without any goods.
(iii) The interaction of the forces of demand and supply will work against price control system.
(iv) Price control system is prone to a lot of malpractices.
(v) The existence of black market will contribute a lot in making price control not suitable in checking demand - pull inflation.