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.

Question

Quizplus · Accepted Answer

In a demand-pull inflation, the increase in the quantity of money leads to an increase in demand and hence a rise in prices. If the Fed stops expanding the quantity of money, it reduces the amount of money supply in the economy. This, in turn, reduces the overall purchasing power and Aggregate Demand, leading to a decrease in prices. Therefore, the demand-pull inflation ends when the Fed stops expanding the quantity of money. Hence, option D is the correct answer.

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