Demand-pull inflation occurs when the:
A) price of a key input increases suddenly.
B) price level changes in response to changes in the business cycle.
C) price of food or energy increases suddenly.
D) business cycle becomes sporadic and unpredictable.

Question

Quizplus · Accepted Answer

Demand-pull inflation occurs when aggregate demand increases faster than aggregate supply, causing an increase in the price level. This can happen during periods of economic expansion when consumer and business spending increase, causing an increase in demand for goods and services. As a result, businesses may raise their prices to take advantage of this increased demand, leading to inflation. The other options (A, C, and D) refer to specific factors that may contribute to inflation but are not necessarily indicative of demand-pull inflation.

Demand-Pull Inflation Occurs When The