Which of the following could trigger demand-side inflation?
A)A decrease in the money supply
B)An increase in taxes
C)An increase in government spending
D)An increase in interest rates

Question

Quizplus · Accepted Answer

An increase in government spending can lead to demand-side inflation if it leads to an increase in aggregate demand that exceeds the supply of goods and services in the economy. This can lead to businesses raising prices, causing inflation.

A decrease in the money supply (A) and an increase in interest rates (D) are both tools used by central banks to combat inflation, as they reduce aggregate demand. An increase in taxes (B) can also reduce aggregate demand, but it doesn't necessarily trigger demand-side inflation.

Which of the Following Could Trigger Demand-Side Inflation