Which term describes inflation caused by demand pulling ahead of supply?

Which term describes inflation caused by demand pulling ahead of supply?

• A. Demand Pull Inflation
• B. Cost Push Inflation
• C. Inflation
• D. Money Supply

Answer: (A)

Demand-pull inflation happens when demand for goods and services grows faster than the economy’s ability to produce them, so prices rise as buyers compete for limited resources. When the economy is expanding and people have more money to spend, producers raise prices to balance the higher demand with available supply. This is different from cost-push inflation, which comes from rising production costs that push prices up regardless of demand. Inflation is the general rise in prices, but the specific scenario described—prices driven by demand outpacing supply—is best labeled demand-pull inflation. Money supply can fuel demand and contribute to inflation, but it’s not the term for this pattern by itself.

Demand-pull inflation happens when demand for goods and services grows faster than the economy’s ability to produce them, so prices rise as buyers compete for limited resources. When the economy is expanding and people have more money to spend, producers raise prices to balance the higher demand with available supply. This is different from cost-push inflation, which comes from rising production costs that push prices up regardless of demand. Inflation is the general rise in prices, but the specific scenario described—prices driven by demand outpacing supply—is best labeled demand-pull inflation. Money supply can fuel demand and contribute to inflation, but it’s not the term for this pattern by itself.