Inflation that is caused by an increase in aggregate demand which is not matched by an increase in aggregate supply is called
A) demand-push inflation.
B) demand-pull inflation.
C) cost-push inflation.
D) cost-pull inflation.

Question

Quizplus · Accepted Answer

Demand-pull inflation occurs when there is excessive demand for goods and services in the economy, causing an increase in the overall price level. This can be due to factors such as expansionary monetary policy, increased government spending, or a decrease in taxes, which can all lead to an increase in aggregate demand. This differs from cost-push inflation, which is caused by a decrease in aggregate supply due to an increase in production costs such as wages, taxes, or raw materials.

Inflation That Is Caused by an Increase in Aggregate Demand