Demand Pull Inflation Trigger

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sabaruch

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Econ kills me.
Which of the following factors would least likely result in demand-pull inflation? An increase in:
A) exports.
B) the quantity of money.
C) government spending.
D) the wage rate.
 
I think B - quantity of money. Decrease would shift the supply curve rightward.
 
Points to remember:
Demand pull - caused by increase in demand levels
1. As money supply increases, people have more to spend, thus leading to overall increase in demand of goods and services.
2. Government spending increases the supply of utilities and other provisions, thus increasing the level of public demand for these utilities.
3. As the money supply increases, indegenious products become cheap thus relating to an increase in exports. (demand from other countries increases)
Cost Push - caused by increase in the cost of production
1.Increase in wage rate or raw material relates to increase in the cost of production of goods and services and thus the general price level goes up.
 
“3. As the money supply increases, indegenious products become cheap thus relating to an increase in exports. (demand from other countries increases) ”
Shouldnt it be :
Exports increase, more money flowing into the local country from abroad.
That does not necessarily mean that the indigenious products are cheaper right?
Say country A exports luxurious cars but their sales/demand are higher abroad in country B.
 
we are exporting because our dollar becomes cheap making there currency stronger, hence they can buy more of our stuff with there currency, therefore exports increase.
 
I would go with A
Y = C + I + G - Net Exports
Net Exports Increase, GDP (Y) Decreases
Aggregate demand shifts to the left, so there is a lower price level.
 
SS6 Reading 26 LOS b
Here’s Schweser’s explanation:
The correct answer was D) the wage rate.
Demand-pull inflation can result from any factor that increases aggregate demand, including increases in the money supply, increases in exports, and increases in government purchases. Increases in the money wage rate or the prices of other productive inputs would result in cost-push inflation as aggregate supply decreases.
 
always was D - an increase in the wage rate is cost-pull inflation, shifts the supply curve.
 
D, definitely. As newsuper said, increase in the wage rate is COST PUSH inflation and shifts the supply curve. People might think that an increase in the wage rate probably means people can spend more and thus aggregate demand will go up resulting in demand pull inflation, but you need to follow the links carefully.
 
Bump
Demand-Pull Inflation is caused by an increase in aggregate demand, typically resulting from an increase in the money supply, government spending, or really, any other cause that can increase AD. Breaking down the above question, we see that:
- An increase in the money supply will increase the amount people have to spend. This
will eventually lead to an increase in the demand for goods & services, and thus AD.
- Government spending increases the supply of public projects (i.e., infrastructure…etc).
The increased supply of these projects increases general disposable income, increasing
the amount of goods and services bough, and thus AD. ****Not completely sure about
this, can anyone confirm/deny?*****
- An increase in the money supply puts downward pressure on the value of currency,
causing home products to become cheaper to the global community. This relates to an
increase in exports as demand from other countries for our cheaper products increases.
Therefore through the process of elimination we are left with D, which is right because:
- Increases in the wage rate is a direct result of cost-push inflation, not demand-pull
inflation. This is due to the resulting increased cost of production of the good of
services forcing price levels up
Economics is my nemesis. I’m averaging 95%+ in most other sections, but this section is an average killer for me.
 
I thought econ would be my highest average section. I really love econ, and I flew through the readings (I read the actual CFAI curriculum).
But, looking at my performance tracker, Econ is one of my lowest sections. I think it’s just so hard to switch gears from the purely quantitative thinking an accountant must perform, to the somewhat theoretical frameworks that micro and macro economics is composed of.
The key to econ is just knowing the frameworks. My problem right now is the labor supply curves. I’ll have to go over that, along with a LOT of other loose ends in the next 11 days.
cfacowtown keep these coming.
 
Agreed, I blew through the readings as well but Econ is without a doubt my biggest weakness. I need to focus on absorbing the material through osmosis, otherwise, I see small marginal improvements at most before the exam.
 
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