Which of the following can cause demand-pull inflation if the economy is currently in equilibrium at full-employment GDP?
Which of the following can cause demand-pull inflation if the economy is currently in equilibrium at full-employment GDP?
An increase in the labour participation rate
A reduction in government spending
A decrease in real wages
An increase in net exports
An increase in the company income tax rate.
Homework Answers
Answer ) an increase in net exports
Explanation : when there is an increase in net exports it will mainly cause demand pull inflation only if economy is currently in equilibrium mainly at full employment GDP. When there is an increase in the aggregate demand then it will surely exceeds the aggregate supply and this is how a demand pull inflation occurs.
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