ECONOMICS
BUSINESS CYCLES
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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There is an increase in consumer spending
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There is an increase in productivity
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The government pays debt by printing money
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There is a substantial increase in the price of key resources
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Net exports decreases
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Detailed explanation-1: -When the aggregate demand in an economy strongly outweighs the aggregate supply, prices go up. This is the most common cause of inflation. In Keynesian economic theory, an increase in employment leads to an increase in aggregate demand for consumer goods.
Detailed explanation-2: -Too little supply or too much demand can mean higher prices for everybody. Demand-pull inflation is when growing demand for goods or services meets insufficient supply, which drives prices higher.
Detailed explanation-3: -Government spending: Government spending increases demand for certain products. Government policies like tax decreases also have an impact, because they give consumers a higher discretionary income for spending on goods and services. If this outpaces supply, it causes demand-pull inflation.
Detailed explanation-4: -Demand-pull inflation creates higher prices, because it shifts the demand curve to the right. More buyers want more products and services. If the supply doesn’t increase proportionally to demand, then buyers will pay higher prices for the limited supply.