Demand- pull inflation can start when
A) the aggregate demand curve shifts rightward.
B) money wage rates rise faster than prices.
C) the short- run aggregate supply curve shifts rightward.
D) money wage rates rise but the price level does not change.

Question

Quizplus · Accepted Answer

Demand-pull inflation is caused by an increase in aggregate demand, which shifts the demand curve rightward. As a result, there is an excess demand for goods and services, leading to an increase in the price level. Choice B refers to cost-push inflation, where rising wage rates increase costs for firms and shift the supply curve upward. Choice C refers to a shift in the short-run aggregate supply curve, which can lead to either inflation or deflation depending on whether the shift is to the left or right. Choice D refers to nominal wage stickiness, which can prevent prices from adjusting immediately to changes in wage rates.

Demand- Pull Inflation Can Start When