Which statement describes demand-pull inflation?

• A. Prices fall due to high supply
• B. Aggregate demand exceeds aggregate supply
• C. Wages fall
• D. Cost of production rises

Answer: (B)

Demand-pull inflation happens when total spending in the economy (aggregate demand) grows faster than the economy can supply goods and services at the current price level (aggregate supply). When aggregate demand exceeds aggregate supply, demand for goods and services pushes prices up as buyers compete for limited goods. That makes the statement describing this situation the correct one: aggregate demand exceeds aggregate supply.

Think of it as too much demand chasing too little supply. The other scenarios describe different forces: prices falling because supply is abundant points to deflation or a surplus; wages falling reduces workers’ purchasing power and tends to ease inflation; higher production costs push prices up through a supply-side squeeze (cost-push inflation), not from demand pressures.