A demand-pull inflation initially is characterised by
A)decreasing real output and a labour surplus.
B)increasing real output and a labour shortage.
C)decreasing real output and a labour shortage.
D)no change in real output and a labour shortage.
E)increasing real output and a labour surplus.

Question

Quizplus · Accepted Answer

Demand-pull inflation occurs when the demand for goods and services exceeds the supply, leading to an increase in prices. In this scenario, firms are producing at maximum capacity, and there is a shortage of labor. This situation leads to an increase in wages and overall costs, which translates into higher prices for consumers. However, in the short run, the output may increase due to the high demand for goods and services. Therefore, option B, which refers to increasing real output and a labor shortage, is the best choice.

A Demand-Pull Inflation Initially Is Characterised by