Question

Demand-pull inflation occurs when a. there is a negative GDP gap. i. prices rise because of an increase in aggregate spending not fully matched by an increase in aggregate output. ii. there are increases in per-unit costs of production. iii. there is a negative price gap. b. A negative GDP gap is associated with demand-pull inflation. i. international inflation. ii. cost-push inflation. iii. output inflation. c. A positive GDP gap is associated with demand-pull inflation. i. output inflation. ii. cost-push inflation. iii. international inflation.

Answer 1

Answer: i. prices rise because of an increase in aggregate spending not fully matched by an increase in aggregate output.

Explanation:

Demand pull inflation is caused by an upward pressure on prices with little to less supply. There is an imbalance between the aggregate demand and supply. When demand surpasses the supply then it causes demand pull inflation. This results in higher prices. Also, when there is low unemployment then it causes people to have more disposable income that leads to more purchases then actual supply.