What type of inflation is caused by an excess of demand over output at the existing price level?

What type of inflation is caused by an excess of demand over output at the existing price level?

• A. Cost-push inflation
• B. Demand-pull inflation
• C. Built-in inflation
• D. Core inflation

Answer: (B)

Demand-pull inflation occurs when the overall demand for goods and services in an economy exceeds the supply available at the current price level. This imbalance leads to increased prices as consumers compete to purchase available products, effectively pulling prices upwards in response to heightened demand. In situations such as a booming economy, low unemployment rates, or increased consumer confidence, demand for products can surge, resulting in demand-pull inflation. This type of inflation reflects strong consumer spending fueled by increased disposable income, easy access to credit, or government fiscal policies that stimulate economic activity. In contrast, cost-push inflation arises from rising production costs, built-in inflation is related to adaptive expectations regarding wage increases, and core inflation excludes certain volatile items to provide a clearer view of long-term trends in inflation. Thus, demand-pull inflation is the most pertinent when discussing the impact of excess demand on pricing dynamics in the economy.

Demand-pull inflation occurs when the overall demand for goods and services in an economy exceeds the supply available at the current price level. This imbalance leads to increased prices as consumers compete to purchase available products, effectively pulling prices upwards in response to heightened demand.

In situations such as a booming economy, low unemployment rates, or increased consumer confidence, demand for products can surge, resulting in demand-pull inflation. This type of inflation reflects strong consumer spending fueled by increased disposable income, easy access to credit, or government fiscal policies that stimulate economic activity. In contrast, cost-push inflation arises from rising production costs, built-in inflation is related to adaptive expectations regarding wage increases, and core inflation excludes certain volatile items to provide a clearer view of long-term trends in inflation. Thus, demand-pull inflation is the most pertinent when discussing the impact of excess demand on pricing dynamics in the economy.