In a demand-pull inflation brought about by increases in the quantity of money, real GDP might increase at times because
A) tax rates decline.
B) real wages fall.
C) money wages fall.
D) real wages rise.

Question

Quizplus · Accepted Answer

In a demand-pull inflation scenario, an increase in the quantity of money can lead to an increase in demand for goods and services. This can temporarily boost real GDP as businesses increase production to meet the higher demand. However, if real wages fall, it means that the purchasing power of workers' wages decreases, which can paradoxically contribute to increased demand for goods and services because businesses can lower their costs and potentially lower prices or increase output.

In a Demand-Pull Inflation Brought About by Increases in the Quantity