In a demand- pull inflation, the AD curve shifts and the SAS curve shifts .
A) rightward; rightward
B) leftward; rightward
C) leftward; leftward
D) rightward; leftward

Question

Quizplus · Accepted Answer

In a demand-pull inflation, there is an increase in aggregate demand (AD) that exceeds the economy's current level of production capacity. As a result, firms increase their output and their prices. The increase in output leads to an increase in the supply of goods and services, which shifts the short-run aggregate supply (SAS) curve rightward. However, as firms face resource constraints such as labor shortages or scarce raw materials, they may not be able to increase output beyond a certain point. This results in higher prices, as firms bid up the prices of these resources. This leads to a leftward shift in the SAS curve. Therefore, the AD curve shifts rightward, and the SAS curve first shifts rightward, and then leftward. Choice D is the correct answer.

In a Demand- Pull Inflation, the AD Curve Shifts and the SAS