The government in an economy recently reduced the tax rates on income for individuals. This prompted an increase in consumer spending, as consumers' income was effectively increased by the reduction in tax rates. The government notices that since the change in tax rates, prices have begun to increase throughout the economy and the inflation rate is increasing. What type of inflation is occurring in the economy?(1 point)

Question

The government in an economy recently reduced the tax rates on income for individuals. This prompted an increase in consumer spending, as consumers' income was effectively increased by the reduction in tax rates. The government notices that since the change in tax rates, prices have begun to increase throughout the economy and the inflation rate is increasing. What type of inflation is occurring in the economy?(1 point)
Responses

demand-pull inflation
demand-pull inflation

deflation
deflation

cost-push inflation
cost-push inflation

disinflation

GPT-4o mini · Answer

The type of inflation occurring in the economy is **demand-pull inflation**. This form of inflation happens when an increase in consumer demand, stimulated by factors such as a tax cut, leads to higher prices as businesses struggle to keep up with the heightened demand.