Demand-pull inflation is caused:
A) by increases in production costs.
B) by increases in tax rates by the government.
C) by trade unions' pressure for wage hike.
D) when spending increases in an economy producing at its maximum capacity.
E) when increases in the supply of goods are exactly offset by increases in spending.

Question

Quizplus · Accepted Answer

Demand-pull inflation occurs when there is excessive spending in an economy that is already producing goods and services at its maximum capacity. This typically leads to an increase in the prices of goods and services as demand outstrips supply. Options A, B, and C are incorrect as they do not directly explain demand-pull inflation. Option E is incorrect as it describes a situation where there is no inflation.

Demand-Pull Inflation Is Caused