Which of the following is most likely to cause demand-pull deflation?

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Question

Which of the following is most likely to cause demand-pull deflation?

Accepted Answer

A significant fall in aggregate demand — Award 1 mark for identifying that demand-pull deflation results from falling aggregate demand. A is incorrect — increased government spending raises aggregate demand. B is incorrect — higher consumer confidence increases consumption and aggregate demand. D is incorrect — increasing the money supply tends to be inflationary.

Answer

An increase in the money supply

Answer

A rise in consumer confidence

Answer

A significant fall in aggregate demand

Answer

An increase in government spending

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