alleryStart learning →What causes demand-pull inflation?
AProduction costs rise and push up the prices of final goods
BDemand for goods and services runs ahead of the supply
CSupply of goods and services runs ahead of the demand
DWages are held down while the money supply is tightened
Answer & Solution
Correct answer: B. Demand for goods and services runs ahead of the supply
1. Demand-pull inflation occurs when demand for goods and services is greater than the supply.
2. Would-be buyers have more money to spend than the amount needed to buy the goods available.
3. That excess demand pulls prices upward, a situation described as too much money chasing too few goods.
4. Rising production costs pushing up prices is cost-push inflation, the other type.
_Source: OpenStax Introduction to Business (CC BY 4.0), Ch 1 "Understanding Economic Systems and Business", section 1.4 Macroeconomics: The Big Picture_
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