Which of the following is a likely result of demand-pull inflation?
A. Prices rise because production costs increase
B. Prices fall due to overproduction
C. Prices rise because overall spending increases
D. Prices stay the same while income falls
Answer (1)
The correct answer is letter C. Prices rise because overall spending increasesDemand-pull inflation happens when consumers, businesses, the government, or even foreign buyers all increase their spending at the same time. This higher demand pulls prices upward because the supply of goods and services cannot keep up.A good local example is the holiday season in the Philippines. Around December, consumer demand increases for food, gifts, and travel. If the supply of goods does not match the spike in spending, prices rise. This is a classic case of demand-pull inflation.
