Initially,demand-pull inflation will
A)increase the price level and not change real GDP.
B)increase both the price level and increase real GDP.
C)increase the price level and decrease real GDP.
D)shift the aggregate supply curve rightward.
E)decrease potential GDP.

Question

Quizplus · Accepted Answer

Demand-pull inflation occurs when there is an increase in aggregate demand, causing prices to rise. This can lead to an increase in real GDP if firms respond to higher prices by increasing production. Therefore, the best choice is B, which indicates that both price level and real GDP increase.

Initially,demand-Pull Inflation Will