An increase in aggregate demand is more likely to lead to demand pull inflation if ?
Correct answer: B. Aggregate supply is Perfectly inelastic
- A. Aggregate supply is perfectly elastic
- B. Aggregate supply is Perfectly inelastic
- C. Aggregate supply is unit elastic
- D. Aggregate supply is relatively elastic
Explanation
When aggregate supply is perfectly inelastic, output cannot expand in response to higher aggregate demand, so the entire pressure appears as a rise in the price level. This produces strong demand-pull inflation.
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