With demand-pull inflation in the long-run AD-AS model,there is:
A) a decrease in aggregate demand that eventually increases nominal wages and causes a decrease in the short-run aggregate supply curve.
B) an increase in aggregate demand that eventually increases nominal wages and causes an increase in the short-run aggregate supply curve.
C) an increase in aggregate demand that eventually decreases nominal wages and causes a decrease in the short-run aggregate supply curve.
D) an increase in aggregate demand that eventually increases nominal wages and causes a decrease in the short-run aggregate supply curve.

Question

Quizplus · Accepted Answer

Demand-pull inflation refers to a situation where there is an increase in aggregate demand leading to an increase in the price level in the economy. In the long-run AD-AS model, this increase in aggregate demand will eventually lead to an increase in nominal wages as firms try to hire more workers to meet the increased demand. This increase in nominal wages will cause a decrease in the short-run aggregate supply curve, as firms' costs of production increase. Therefore, the correct answer is D - an increase in aggregate demand that eventually increases nominal wages and causes a decrease in the short-run aggregate supply curve.

With Demand-Pull Inflation in the Long-Run AD-AS Model,there Is