As the aggregate demand curve shifts from AD₁ to AD₂ in Exhibit 14.3, the economy experiences: A) cost-push inflation. B) demand-pull inflation. C) wage-push inflation. D) hyperinflation.

Question

Quizplus · Accepted Answer

The shift of the aggregate demand curve from AD₁ to AD₂ indicates an increase in aggregate demand, which leads to an increase in the equilibrium level of output and price level. This is called demand-pull inflation, where the increase in demand pulls up the price level. Therefore, the correct answer is (B) demand-pull inflation.

As the Aggregate Demand Curve Shifts from AD1 to AD2

As the Aggregate Demand Curve Shifts from AD₁ to AD₂