2006-06-30 02:40:07 · 5 answers · asked by Anonymous in Social Science ➔ Economics
Increased aggregate demand usually leads to inflation.
This may be due to a decreas in interest rates, which makes it more affordable to borrow money providing individuals with more money to spend. It also encourages firms to increase capital expenditure which also leads to more spending.
If supply does not increase, the increased deman will mean that demand would exceed supply, so prices would rise to compensate for this (inflation)
2006-06-30 04:45:54 · answer #1 · answered by superman2day 1 · 0⤊ 0⤋
There's really only one possible reason - the money supply growing faster than the rate of growth. The extra money goes into inflation. If money supply is constant, spending just gets shifted among products and average prices stay constant. That's why printing money to finance deficits causes inflation.
2006-06-30 23:59:42 · answer #2 · answered by ? 2 · 0⤊ 0⤋
Overeating.
2006-06-30 09:44:00 · answer #3 · answered by wmp55 6 · 0⤊ 0⤋
The goverment prints new money - so more money comes into circulation - or more foreign currencies flow into the country.
2006-06-30 09:46:06 · answer #4 · answered by veronica 4 · 0⤊ 0⤋
it comes down to the law of supply and demand.
demand for products or services tends to push prices up,
competition (supply) tends to push prices down.
2006-06-30 09:52:29 · answer #5 · answered by leadbelly 6 · 0⤊ 0⤋