If aggregate demand shifts right, then eventually price level expectations rise. The increase in price level expectations causes the short-run aggregate-supply curve to shift to the left.

Question

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When aggregate demand shifts right, it initially causes an increase in both the price level and output in the short run. Over time, as workers and firms adjust their expectations of prices upwards, they will demand higher wages and prices for their goods and services, respectively. This adjustment leads to an increase in the costs of production, which causes the short-run aggregate-supply curve to shift to the left, reflecting a decrease in the quantity of goods and services supplied at any given price level.

If Aggregate Demand Shifts Right, Then Eventually Price Level Expectations