A demand-pull inflation initially is characterized by
A) decreasing real output and a labor surplus.
B) decreasing real output and a labor shortage.
C) increasing real output and a labor surplus.
D) increasing real output and a labor shortage.

Question

Quizplus · Accepted Answer

Demand-pull inflation occurs when aggregate demand increases faster than aggregate supply, causing a shortage of goods and services in the economy. This leads to an increase in prices and an increase in real output. However, as there is a shortage of goods and services, there is also a shortage of labor, leading to increasing wages and potentially even labor shortages. Therefore, the best choice is D, increasing real output and a labor shortage.

A Demand-Pull Inflation Initially Is Characterized by