Demand pull inflation occurs when the:
A) price of a key input increases suddenly.
B) price level changes in response to changes in the business cycle.
C) price of necessity goods increases suddenly.
D) business cycle becomes sporadic and unpredictable.

Question

Quizplus · Accepted Answer

Demand pull inflation occurs when there is an increase in aggregate demand that exceeds the economy's production capacity, causing an upward pressure on prices. This can occur due to various factors such as increased government spending, reduced taxes, and increased consumer confidence during an economic expansion. Thus, the price level changes in response to changes in the business cycle.

Demand Pull Inflation Occurs When The