CSEET · Economic and Business Environment · Indian Economy
Prices of vegetables, fuel and manufactured goods in an economy rise because aggregate demand exceeds the available supply of goods at existing prices. This type of inflation is best described as:
This is demand-pull inflation. It occurs when aggregate demand exceeds aggregate supply at existing prices, so prices are pulled upward. Cost-push inflation is different, as it results from rising production costs such as wages or raw material prices rather than excess spending.
- ADemand-pull inflationCorrect
- BCost-push inflation
- CStructural deflation
- DStagflation
Explanation
When total spending is more than the economy can supply at current prices, prices are pulled up; this is demand-pull inflation. Cost-push inflation arises from higher input costs such as wages or raw materials, which is not the situation described.
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