Demand-side inflation is most likely to occur when the economy
A) has substantial excess capacity.
B) is approaching or operating at full employment.
C) has an aggregate demand curve shifting to the left.
D) has a horizontal aggregate supply curve.
E) has labor productivity rising faster than wages.

Question

Quizplus · Accepted Answer

Demand-side inflation occurs when aggregate demand exceeds aggregate supply causing upward pressure on prices. This is more likely to occur when the economy is approaching or operating at full employment, as resources are fully utilized, and there is limited scope for increasing output in the short run.

Demand-Side Inflation Is Most Likely to Occur When the Economy