What causes demand-pull inflation?

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Demand-pull inflation occurs when the demand for goods and services in an economy outpaces the supply available at current prices. This imbalance between robust demand and insufficient supply creates upward pressure on prices, leading to inflation. When consumers, businesses, and even the government show a heightened willingness to purchase goods and services, the overall demand within the economy increases. If this demand surge is not matched by an equivalent growth in production or supply, prices inevitably rise, resulting in demand-pull inflation.

In this context, the other options do not accurately describe what drives demand-pull inflation. Increased costs of production typically lead to cost-push inflation rather than an increase in demand. Government price controls could temporarily suppress prices but wouldn't inherently cause demand-pull inflation. Lastly, increased unemployment rates tend to decrease overall demand in an economy, which is opposite to the condition required for demand-pull inflation.

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