Which of the following statements is true about "demand-pull" inflation?

A. It will result in a decrease in output.
B. It will result from a decrease in aggregate demand.
C. Aggregate supply will increase as a result.
D. The capacity of the economy will decrease as a result.
E. Wages will rise as the economy moves toward long-run equilibrium.

Question

Which of the following statements is true about "demand-pull" inflation?

A.	It will result in a decrease in output.
B.	It will result from a decrease in aggregate demand.
C.	Aggregate supply will increase as a result.
D.	The capacity of the economy will decrease as a result.
E.	Wages will rise as the economy moves toward long-run equilibrium.

anonymous · Answer

Demand pull inflation is where the demand for an item has increased to a point where the price is increased, to reach an new equilibrium on a supply demand diagram. For example, if there is a toy many children want, sellers may increase the price.

anonymous · Answer

Source: http://answers.yahoo.com/question/index?qid=20080205220441AAfuDJC

anonymous · Answer

Hope this is helpful!

anonymous · Answer

So do you think it is C? Supply needs to increase to match the increasing demand

anonymous · Answer

Yes I think C, but I could always be wrong, but we both came to the same conclusion. I think it's safe to say C :D

anonymous · Answer

haha thanks! If you have time could you take a look at 2 more?

anonymous · Answer

Sure, Don't forget to open another question.

anonymous · Answer

Got it!