In the long run, demand-pull inflation:
A) Starts out with a shift in the AS curve, but no shift of the AD curve
B) Starts out with a rightward shift in the AD curve, followed by a resulting leftward shift of the short-run AS curve
C) Starts out with a leftward shift in the AD curve, followed by a resulting rightward shift of the short-run AS curve
D) Involves a shift of the AD curve only, with no shift of the AS curve

Question

Quizplus · Accepted Answer

Demand-pull inflation begins with a rightward shift in the AD curve caused by an increase in consumer spending or investment. As a result, there is initially a shortage of goods and services, leading to higher prices. However, in the long-run, the higher prices lead firms to increase production, and the short-run AS curve shifts to the right, reducing the inflationary pressure.

In the Long Run, Demand-Pull Inflation