Which of the following best describes demand-pull inflation?
A. When taxes increase and prices rise
B. When overall demand exceeds the economy’s ability to supply goods
C. When businesses raise prices due to wage cuts
D. When banks increase interest rates suddenly
Answer (2)
The correct answer is letter B. When overall demand exceeds the economy’s ability to supply goodsDemand-pull inflation happens when many people, businesses, or the government are spending and buying more than what the economy can produce. This extra demand pushes prices up. It’s like a crowded market—when too many people want to buy the same thing, sellers can raise prices because they know buyers are willing to pay more.In the Philippines, demand-pull inflation can happen during election years. Government spending increases for infrastructure projects or cash assistance programs (ayuda), and more money flows through the economy. This can cause temporary price hikes, especially for construction materials or basic goods.Demand-pull inflation is about too much money chasing too few goods, and the result is higher prices across the board.
The best description of demand-pull inflation is B. When overall demand exceeds the economy’s ability to supply goods.Demand-pull inflation happens when the total demand for goods and services in an economy outpaces its production capacity. This excess demand leads to higher prices because more people compete to buy the limited goods available.
