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

Question

Quizplus · Accepted Answer

Demand-pull inflation occurs when the aggregate demand curve shifts rightward, causing an increase in the price level. Option A is incorrect because if money wage rates rise faster than prices, it would cause cost-push inflation, not demand-pull inflation. Option B is incorrect because if the short-run aggregate supply curve shifts rightward, it would cause a decrease in the price level and not demand-pull inflation. Option D is incorrect because if money wage rates rise but the price level does not change, it would cause a decrease in profits and output but not demand-pull inflation.

Demand-Pull Inflation Can Start When