The situation when aggregate demand expands so much that equilibrium output exceeds full employment output and the price level rises is known as ________ inflation.

Question

Quizplus · Accepted Answer

Demand-pull inflation happens when aggregate demand grows so much that it surpasses the economy's supply capacity at full employment, resulting in higher price levels. It is driven by consumer and investment expenditures, which exceed the potential output of the economy, leading to a scarcity of goods and services, causing prices to rise.

The Situation When Aggregate Demand Expands So Much That Equilibrium