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

Question

Quizplus · Accepted Answer

In a demand-pull inflation, there is an increase in aggregate demand which creates a shortage of labor. This labor shortage then allows workers to demand higher wages, leading to an increase in money wage rates. Therefore, choice C is the correct answer.

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