Increases in the quantity of money can create demand-pull inflation.

Question

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Demand-pull inflation occurs when the overall demand for goods and services in an economy outstrips the economy's ability to produce these goods and services. Increases in the quantity of money can boost consumer and business spending, leading to higher demand, which, if not matched by a corresponding increase in supply, can result in higher prices, or demand-pull inflation.

Increases in the Quantity of Money Can Create Demand-Pull Inflation