Which sentence is correct and why?

Number 2 is correct.
1. Demand to do (infinitive) something means: the subject itself does the action. Example: Jack demands to see the manager. (Jack demands that JACK see the manager.)
2. Demand (that) + Subject verb means: Someone/something demands that someone/something ELSE does the action. Example: Jack demands (that) HIS WIFE see the manager.

In your sentence, "Economics conditions" cannot do the actions: "cut wages and prices but also reduce inflation-raised tax rates". Someone else must do them and in this case: "WE". So, sentence 2 is definitely correct and NOT 1.

Additional info: After certain verbs like "demand and suggest" the verb in the following noun clause should always be in the infinitive without TO. Example: They suggested that she go to the doctor.

I hope this helps. Good luck!

Economics conditions demand we not only cut wages and prices but asso reduce inflations - raised tax rates . . .

2 is just plain wrong.

1 is better but it's still weird. I know that you used "not only but also" idiom - nothing wrong here. But, you still need to work on the sentence. By the way, economic condition itself cannot demand anything.

no.1 is correct.......
n its because in the second one u have put a noun i.e. we immediately after a verb i.e. demand which is grammatically incorrect.......