In a demand- pull inflation, if the Fed stops expanding the quantity of money,
A) government expenditure will cause the demand- pull inflation to continue.
B) the demand- pull inflation ends.
C) a cost- push inflation will occur.
D) a deflation will occur.

Question

Quizplus · Accepted Answer

In a demand-pull inflation, the general price level increases due to increased demand for goods and services, which in turn pushes the prices up. If the Fed stops expanding the quantity of money, it will reduce the demand for goods and services, and the demand-pull inflation will end. Government expenditure or cost-push inflation may still cause price increases in the economy, but the demand-pull inflation will come to an end. Deflation is unlikely to occur as it is the opposite of inflation and results in a decrease in prices.

In a Demand- Pull Inflation, If the Fed Stops Expanding