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Questions and Answers
What is demand pull inflation primarily caused by?
What is demand pull inflation primarily caused by?
- Government regulation on prices
- A high level of demand exceeding supply (correct)
- A decrease in consumer income
- An increase in supply of goods and services
Which scenario illustrates demand pull inflation?
Which scenario illustrates demand pull inflation?
- High consumer demand for cars leads to increased prices due to limited supply (correct)
- Increased production of goods satisfies consumer demand
- Stable prices despite increased consumer income
- A decrease in consumer spending leads to lower price levels
What happens to prices during demand pull inflation?
What happens to prices during demand pull inflation?
- Prices decrease to stimulate demand
- Prices fluctuate wildly without any pattern
- Prices increase due to high demand outpacing supply (correct)
- Prices remain constant regardless of demand
How do manufacturers typically respond to demand pull inflation?
How do manufacturers typically respond to demand pull inflation?
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Which factor contributed to the demand pull inflation after COVID?
Which factor contributed to the demand pull inflation after COVID?
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Study Notes
Demand-Pull Inflation
- Demand-pull inflation occurs when overall demand for goods and services exceeds the supply available in an economy.
- This shortage of goods and services leads to a rise in general prices.
- Post-COVID, increased demand for jobs and rising incomes fueled higher consumer spending.
- The surge in demand for goods, like cars, outpaced manufacturers' production capabilities.
- Car manufacturers responded by increasing prices to reduce demand, illustrating demand-pull inflation.
- Essentially, increased consumer spending caused car manufacturers to raise prices.
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