Household consumption, government infrastructure spending, and export demand are surging across the country. Figures released last week by the Office for National Statistics (ONS) show that consumer confidence has reached a five-year high, driven by accumulated household savings and recent personal tax cuts. With aggregate demand outstripping the immediate productive capacity of the economy, many key sectors are experiencing significant supply bottlenecks.
Firms, facing long order books and capacity constraints, are raising their prices to manage demand and protect their profit margins. This broad rise in domestic spending suggests that inflation in the UK will remain well above the 2% target throughout the fiscal year. Many economists believe that this type of demand-pull inflation (line 8) requires decisive monetary action, specifically raising the Bank Rate, to cool down the overheated economy before a wage-price spiral becomes entrenched.
Define the term 'demand-pull inflation' as used in Extract C (line 8).
327 exam-style questions on AQA A Level Economics 2.3 Economic performance, covering 2.3.1 Economic growth and the economic cycle, 2.3.2 Employment and unemployment, 2.3.3 Inflation and deflation, and 2.3.4 Possible conflicts between macroeconomic policy objectives. Each one has a worked solution and a mark scheme showing where the marks go.