PRC-3 · Chapter 18 · Question 19 of 33
The government prints billions of new currency notes, sparking a massive spending spree. Because factories are already at full capacity and cannot produce more goods, they just raise prices. This is known as:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Demand-pull inflation
Explanation
Demand-pull inflation occurs when aggregate demand rises far beyond the economy's aggregate supply capacity ('too much money chasing too few goods').
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