In a demand-pull inflation brought about by increases in the quantity of money, real GDP might increase temporarily because
A) tax rates decline.
B) real wages fall.
C) money wages fall.
D) real wages rise.

Question

Quizplus · Accepted Answer

In a demand-pull inflation scenario, when the quantity of money in an economy increases, it can lead to an increase in spending and demand for goods and services. This increased demand can temporarily boost real GDP. However, as prices rise, the real value of wages (the purchasing power of wages) falls, because workers are able to buy less with the same amount of nominal wages. This decrease in real wages can contribute to the temporary increase in real GDP by making labor cheaper for employers, potentially leading to increased hiring and production.

In a Demand-Pull Inflation Brought About by Increases in the Quantity