Inflation question

Suppose that inflation increases due to higher capacity utilization. Such inflation is best described as:

cost-push inflation.


demand-pull inflation.

The correct answer is C . Why it is not cost-push inflation ?

What causes higher capacity utilization?

Increased demand.

Cost push would would be an aggregate increase in the price of raw materials and commodities that have no alternative say because it is more costly to produce or because of political reasons.

Demand pull inflation increase prices because of more agregate demand or spending …thus higher capacity utilization is a result. Hopefully that helps