Question : Demand-pull inflation occurs when:
Option 1: Aggregate demand exceeds aggregate supply
Option 2: Aggregate supply exceeds aggregate demand
Option 3: There is a decrease in aggregate demand
Option 4: There is a decrease in the aggregate supply
Correct Answer: Aggregate demand exceeds aggregate supply
Solution : The correct answer is (a) Aggregate demand exceeds aggregate supply
Demand-pull inflation is a type of inflation that occurs when the total demand for goods and services in an economy surpasses the economy's ability to produce and supply those goods and services. This imbalance between aggregate demand and aggregate supply puts upward pressure on prices.
When aggregate demand exceeds aggregate supply, it indicates that there is excess demand in the economy, leading to competition among buyers for limited goods and services. As a result, producers may increase their prices to capitalize on this high demand and limited supply. This leads to a general increase in the overall price level, causing demand-pull inflation.
Option 3: Wages and input costs increase
Option 4: The government increases taxes
Question : Cost-push inflation occurs when:
Option 1: There is an increase in aggregate demand
Option 2: There is a decrease in aggregate demand
Option 3: There is an increase in aggregate supply
Question : If aggregate supply exceeds aggregate demand, the economy is likely to experience:
Option 1: Inflationary pressure
Option 2: Deflationary pressure
Option 3: Recessionary pressure
Option 4: Stagflation
Question : The equilibrium in the aggregate market occurs when:
Option 1: Aggregate demand equals aggregate supply
Option 2: Consumption equals investment
Option 3: Government expenditure equals net exports
Option 4: Saving equals investment
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