A demand- pull inflation initially is characterized by
A) decreasing real output and a labor surplus.
B) increasing real output and a labor surplus.
C) increasing real output and a labor shortage.
D) decreasing real output and a labor shortage.

Question

Quizplus · Accepted Answer

A demand-pull inflation occurs when there is an increase in aggregate demand, which leads to an increase in production and employment levels. As demand increases, firms will hire more workers and increase production, resulting in a labor shortage. This in turn can lead to wage increases and higher production costs, which can put upward pressure on prices, causing inflation. Therefore, choice C (increasing real output and a labor shortage) is the best answer.

A Demand- Pull Inflation Initially Is Characterized by