Question

Other things equal, demand-side inflation results in output ____ and the price level ____.

A Increasing; increasing

B Increasing; decreasing

C Decreasing; increasing

D Decreasing; decreasing

Answer 1

Correct option - (A) increasing , increasing

Demand side inflation also known as demand pull inflation - it is a situation in which aggregate demand in economy strongly outweights the aggregate supply.

As the demand increases firms employ more and more more worker it result in increase in income and further increase in demand. These combine effects leads to increase in output and prices both. But prices increases more in respect to output because there is not enough supply to meet the demand.