Question:
Demand-pull inflation is most likely to occur when:
(1) The cost of raw materials increases globally.
(2) Aggregate demand exceeds the economy’s full employment output.
(3) The government reduces its spending.
(4) Technological advancements increase productivity.
(5) Labor unions negotiate higher wages.
Correct Answer:
(2)
Answer Explanation:
Demand-pull inflation is “too much money chasing too few goods.” It happens when Aggregate Demand (AD) shifts right and pushes the economy beyond its potential output, driving up the price level.
Topic: Inflation Year: 2024
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