Economics • Economic BasicsMedium
Which of the following describes the condition of 'Demand Pull Inflation' in an economy?
A. Rising price levels driven by an increase in aggregate demand outstripping aggregate supply✓ Correct Answer
B. Escalating commodity prices caused solely by sudden increases in nominal wages
C. Inflationary pressure originating from monopolistic price setting in agricultural sectors
D. Price hikes resulting from higher international crude oil import tariffs
💡 Solution & Explanation
Demand pull inflation occurs when aggregate demand for goods and services in an economy grows faster than productive capacity, pulling prices upward. Cost push inflation stems from supply side shocks like wage hikes or raw material shortages. Central banks typically respond to demand pull pressures by tightening monetary policy through interest rate hikes. The Phillips curve illustrates the short run trade off between inflation and unemployment during such periods.
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