Which term describes inflation when demand grows faster than supply?

Which term describes inflation when demand grows faster than supply?

• A. Cost Push Inflation
• B. Inflation
• C. Book Costs
• D. Demand Pull Inflation

Answer: (D)

When demand grows faster than supply, prices rise as buyers compete for a limited amount of goods and services. This scenario is described as demand-pull inflation. The mechanism is simple: stronger demand shifts up the overall spending in the economy, and if the production side can’t keep up in the short run, the price level increases. This is different from cost-push inflation, which happens when higher costs of production push prices up regardless of demand. Inflation is too broad a term to describe the cause by itself, and “book costs” isn’t a standard term in this context. So the term that best describes inflation driven by demand outpacing supply is demand-pull inflation.

When demand grows faster than supply, prices rise as buyers compete for a limited amount of goods and services. This scenario is described as demand-pull inflation. The mechanism is simple: stronger demand shifts up the overall spending in the economy, and if the production side can’t keep up in the short run, the price level increases. This is different from cost-push inflation, which happens when higher costs of production push prices up regardless of demand. Inflation is too broad a term to describe the cause by itself, and “book costs” isn’t a standard term in this context. So the term that best describes inflation driven by demand outpacing supply is demand-pull inflation.