Practice Quiz

CLEP Principles of Macroeconomics Exam Prep

Category - Macroeconomics

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The United States is facing a large budget deficit that is only expected to increase as new social programs and unemployment benefits are offered to citizens. This budget deficit is more likely to produce a demand-pull inflation when:
  1. Outsourcing leads to low employment
  2. GDP is higher and unemployment is lower
  3. GDP is lower and unemployment is higher
  4. Foreign investment is limited to manufacturing
Explanation
Answer - B - This budget deficit is more likely to produce a demand-pull inflation when the GDP is higher and unemployment is lower.

Key Takeaway: Demand-pull inflation occurs when high demands lead to a higher GDP and lower unemployment. With too few supplies being chased by too much demand, such an inflation occurs.
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