During a demand-pull inflation, if the Fed tries to maintain a level of real GDP above potential GDP,
A) the SAS curve will shift leftward continuously and the AD curve will not shift.
B) the AD curve will shift rightward continuously and SAS curves will shift leftward continuously.
C) the AD curve will shift rightward continuously and the SAS curve will not shift.
D) there will be a one-time shift in the AD and the SAS curves.

Question

Quizplus · Accepted Answer

When the Fed tries to maintain real GDP above potential GDP, it often results in continuous rightward shifts of the AD curve due to increased demand. Simultaneously, the SAS curve shifts leftward continuously as higher demand leads to higher prices and wages, reducing short-run aggregate supply.

During a Demand-Pull Inflation, If the Fed Tries to Maintain