if policies in the US are too expansionary a persistent budg

if policies in the U.S. are too expansionary, a persistent budget deficit financed by selling bonds to the central bank can result in

A) demand-push inflation

B) demand-pull inflation

C) cost-pull inflation

D) cost-push inflation

Solution

Answer Option B: Demand Pull inflation

Explanation:- as per the question the U.S. government is going for expansionary budget which results in increase in planned investment and to fulfil its deficit in budget, it sells bonds to the central bank. This will result in demand pull inflation. because increase the planned investment, results in increase public spending in different development and non development works. As a result the aggregate demand for the economy increases with the constant aggregate supply. So a inflationary pressure is created in the economy due to increase in aggregate demand hence it is a demand pull inflation.