More investment by businesses as the cost of money rises and profits fall. Firms that import raw materials will cost more, so payments for imports will increase, causing aggregate supply to shift to the left. This leads to increased employment and higher income. This leads to higher indirect taxes for the government and lower savings for families. So overall growth has increased significantly. Inflation on Monetary Policy Inflation is an increase in the general price level. If interest rates fall, families are not willing to save as much because they get a lower return, so consumer spending increases. When interest rates fall, households will get a loan to buy goods because the cost of borrowing is cheaper and therefore they will spend on their own desires. Overall, this will increase aggregate demand, resulting in demand-pull inflation. Demand-pull inflation occurs when demand exceeds supply at current prices, so prices are pushed up by aggregate demand. This inflation causes an increase in GDP due to increased consumer spending, as shown in