Which of the following could set off a round of demand-pull inflation?
A)an increase in imports
B)an increase in the money supply
C)an increase in real wages
D)an increase in taxes

Question

Quizplus · Accepted Answer

An increase in the money supply can cause demand-pull inflation because consumers will have more money to spend, and if the supply of goods and services in the economy does not increase, prices will rise.

Option A is incorrect because an increase in imports would actually decrease demand-pull pressure by increasing the supply of goods and services available in the economy.

Option C is incorrect because an increase in real wages, while increasing the consumer's purchasing power, would also increase costs for firms, and they may increase prices to cover the increased costs. However, an increase in real wages is more likely to cause cost-push inflation than demand-pull inflation.

Option D is incorrect because an increase in taxes would decrease consumer spending, which would lead to a decrease in demand and possibly a decrease in prices.

Which of the Following Could Set Off a Round of Demand-Pull