Demand-side inflation occurs when
A) increases in aggregate demand are not matched by increases in aggregate supply.
B) increases in aggregate supply outstrip increases in aggregate demand.
C) aggregate demand falls more rapidly than aggregate supply.
D) long-run aggregate demand rises faster than short-run aggregate supply.

Question

Quizplus · Accepted Answer

Demand-side inflation occurs when there is excess demand in the economy, meaning that aggregate demand increases faster than aggregate supply. This leads to an increase in prices as businesses try to meet the higher demand for goods and services. Option B is incorrect because when increases in aggregate supply outstrip increases in aggregate demand, it leads to a decrease in prices due to the excess supply. Option C is incorrect because it describes a situation of deflation rather than inflation. Option D is incorrect because it describes a scenario where there is no inflation, but rather a shift in the short-run aggregate supply curve to the left.

Demand-Side Inflation Occurs When