In a demand-pull inflation,if the Fed stops expanding the quantity of money,
A)a cost-push inflation will occur.
B)government expenditure will cause the demand-pull inflation to continue.
C)a deflation will occur.
D)the demand-pull inflation ends.
E)None of the above answers is correct.

Question

Quizplus · Accepted Answer

A demand-pull inflation occurs when there is an increase in consumer demand for goods and services, leading to higher prices. If the Fed stops expanding the quantity of money, it reduces the availability of credit and slows down economic activity, which in turn reduces demand for goods and services. As a result, the demand-pull inflation ends. Cost-push inflation occurs due to an increase in the cost of production, such as higher wages or raw material prices, and is not affected by changes in the quantity of money. Government expenditure can contribute to demand-pull inflation, but if the Fed stops expanding the money supply, the net effect is a reduction in demand. Deflation is the opposite of inflation and occurs when prices are falling due to a decrease in demand or an increase in the supply of goods and services.

In a Demand-Pull Inflation,if the Fed Stops Expanding the Quantity