Demand-pull inflation can develop when
A)There is a shortage of investment and investors bid up interest rates.
B)Inventories shrink and consumers bid up prices.
C)There is a surplus of resources and so wages are bid up by employers.
D)Undesired investment occurs.

Question

Quizplus · Accepted Answer

Demand-pull inflation occurs when there is an increase in demand for goods and services, which leads to higher prices. This can happen when there is a decrease in inventories, as consumers compete for a limited supply of goods and bid up prices. Option A is incorrect because an increase in interest rates would likely decrease demand, not increase it. Option C is incorrect because a surplus of resources would lead to lower wages, not higher wages. Option D is incorrect because it is unclear what is meant by "undesired investment."

Demand-Pull Inflation Can Develop When