1)What type of economy is also known as capitalism?

2)Graphically, demand pull inflation is shown as a

3)What is the classical dichotomy?

1)The free market or laissez faire economy (meaning letting things take their course) is frequently referred to as capitalism. This system of economics promotes letting buyers and sellers pursue their own interests with no, or limited, interference from the government.

The free market economy is the basis of most democratic and western nations where there is private property and production is done to pursue profit. This pursuit of profit results in capital formation that is then invested in other areas of the economy, and causes wealth to grow and expand, usually in the accounts of the wealthy. This is why it is usually referred to in a derogatory fashion by thinkers like Marx to label free market systems.

2)

Demand-pull inflation is shown as a rightward shift of the Aggregate Demand curve along the Aggregate Supply curve.

Prices and GDP both increase with the rightward shift of the Aggregate Demand curve, and demand-pull inflation is experienced.

3)The classical dichotomy is the notion that real and nominal values can be analyzed independently. The real values are the underlying prices of goods, after adjusting for inflation. The nominal values are the face values as measured by inflated monetary metrics. An economy with the features of the classical dichotomy could be understood purely by their 'real' variables such as what they produce, without reference to nominal values such as the money or interest rates prevalent in that economy.