When money supply of a country increases there will

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not able to coup up, there will be a problem of inflation occur (Heakal, 2017). When money supply of a country increases, there will be too much money going for lesser goods. When this happen, the aggregate demand will increase to a stage whereby it will cause inflation. As shown in the diagram, when aggregate demand increase from AD1 to AD2 while the aggregate supply did not increase, this will cause the price to increase. According to demand-pull inflation theory, there are some ways that can cause a decrease in each factors of total demand are effective in reducing the demand pressure which then leads to fall in the inflation. For example a tax increase accompanied with or without controlling the volume of money. This can lead to decrease in the level of total expenditure which results in the effective control of inflation. In difficult conditions, such as hyperinflation during the war, where controlling the volume of money or decreasing the total expenditure may not be applicable, an increase in taxes is an alternative way to act directly against inflation (Khandan and Hosseini, 2016). Q1 Q2 Output Price P2 P1
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Reference Amadeo, K. (2017). What is demand-pull inflation? Retrieved from https://www.thebalance.com/what-is-demand-pull-inflation-3306100 Heakal, R. (2017). Cost-push inflation versus demand-pull inflation. Retrieved from https://www.investopedia.com/articles/05/012005.asp Kanwar, N. (2014). Inflation and Indian economy. Journal of Business and Management, 16 (1), 28-34. Khandan, A., and Hosseini, S. M. (2016). Determinants of Inflation: A case study of Iran. Applied Economics and Finance, 3 (4). Oner, C. (2017). Inflation: Prices on the rise. Retrieved from http://www.imf.org/external/pubs/ft/fandd/basics/inflat.htm
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