Question

Which scenario is an example of demand-pull inflation?
Responses

An increase in workers’ wages raises the production cost of cars, and car prices rise as a result.
An increase in workers’ wages raises the production cost of cars, and car prices rise as a result.

A government bailout helps car manufacturers lower their costs, and car prices fall as a result.
A government bailout helps car manufacturers lower their costs, and car prices fall as a result.

Consumers have more money to buy cars, and the prices of cars and car accessories rise as a result.
Consumers have more money to buy cars, and the prices of cars and car accessories rise as a result.

The demand for cars falls as consumers have less disposable income, and car prices fall as a

Answer 1

Consumers have more money to buy cars, and the prices of cars and car accessories rise as a result.

This is demand-pull inflation because higher consumer spending increases demand relative to supply, pushing prices up.