Dreary just told me he feels rusty … All of the following occurrences could cause demand-pull inflation except an A. increase in exports. B. increase in money wage rates. C. increase in the quantity of money. D. increase in government purchases
not so rusty ! An increase in money wage rates can cause a cost-push inflation as companies face higher costs
A. I am not sure about the relationship between inflation and exchange rate. But I think the increasing cost due to demand-pull inflation causes the prices to go up and that make our products less attractive to others… B. Demand pull inflation results in an increase in wage rates. C. Quantity of money increases because of the increases economic activity. D. In order to control the inflation, the Govt. may try to reduce the money supply by spending less.
The determinant of demand-pull inflation is the agregate demad going beyound the capabilities of the economy. Determinants of demand influence demand-pull inflation. An increase in exports indicates increased demand of the nation’s goods/services and the same effect would be produced by a decline of imports from other countries. An increase in the quantity of money drives interest rates down, which stimulates investment, and agregate demand down the line. Increase in government purchases increases demand for goods/services. Increase in money wage rate is a determinant for cost-push inflation. The answer must be B.