Question

Statement (1): Demand pull inflation occurs when the overall demand for good and services in an economy outpaces the available supply.

Statement (2): Demand pull inflation occurs when the costs of production increase, leading to higher prices for consumers.

Options

• Both statements are true.

• Both statements are false.

• Statement 1 is true but Statement 2 is false.

• Statement 2 is true but Statement 1 is false.

Answer 1

Statement 1 is true but Statement 2 is false.

Explanation:

• Statement (1): Demand-pull inflation occurs when the overall demand for goods and services exceeds the available supply, causing prices to rise.
• Statement (2): It describes cost-push inflation as when the cost of production (such as wages or raw materials) rises, leading firms to raise prices.