More investment by businesses as the cost of borrowing rises and profits fall. Imports of raw materials by businesses will cost more, so import payments will increase, causing aggregate supply to shift to the left. This leads to increased employment and higher incomes. This leads to more indirect taxes for the state and less savings for households. Overall growth is therefore considerably increased. Inflation on Monetary Policy Inflation is an increase in the general price level. If interest rates fall, households are not willing to save as much because they get a lower return, leading to increased consumer spending. When interest rates fall, households will get a loan to buy items because the cost of borrowing is cheaper and so they will spend to meet their needs. Overall, this will increase aggregate demand, leading to 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 GDP to increase due to higher consumer spending, as shown in the chart