In a demand-pull inflation, money wage rates rise because
A) an increase in aggregate demand creates a labor shortage.
B) a decrease in aggregate demand creates a labor surplus.
C) a decrease in aggregate demand creates a labor shortage.
D) an increase in aggregate demand creates a labor surplus.

Question

Quizplus · Accepted Answer

In a demand-pull inflation, there is an increase in aggregate demand which leads to a shortage of labor. As the demand for labor increases, firms need to attract workers by offering higher wages. This increase in money wages then leads to an increase in the cost of production and inflationary pressure on prices.

In a Demand-Pull Inflation, Money Wage Rates Rise Because