Which of the following policies might create demand-pull inflation
A)An increase government spending
B)An increase in interest rates
C)An increase in taxes
D)All of these policies could create demand-pull inflation

Question

Quizplus · Accepted Answer

An increase in government spending can create demand-pull inflation by increasing the demand for goods and services, and putting upward pressure on prices. As consumers and businesses compete for the same limited supply of goods and services, prices rise to reflect the increased demand. An increase in interest rates may slow down economic activity and reduce demand-pull inflation. An increase in taxes may reduce disposable income and curb demand-pull inflation. Therefore, only option A is likely to create demand-pull inflation.

Which of the Following Policies Might Create Demand-Pull Inflation