When the aggregate demand curve shifts to the right, intersecting the aggregate supply curve on its upward-sloping or vertical segment:
A) demand-pull inflation occurs.
B) cost-push inflation occurs.
C) stagflation occurs.
D) deflation occurs.

Question

Quizplus · Accepted Answer

When the aggregate demand curve shifts to the right, it creates excess demand for goods and services, leading to an increase in prices. This type of inflation is referred to as demand-pull inflation. Choice B is incorrect because cost-push inflation occurs when there is a decrease in aggregate supply due to an increase in the cost of production, such as an increase in wages or raw material costs. Choice C is incorrect because stagflation occurs when there is a decrease in aggregate supply combined with low or stagnant economic growth, leading to high inflation and low employment. Choice D is incorrect because deflation occurs when there is a decrease in overall prices due to a decrease in aggregate demand.

When the Aggregate Demand Curve Shifts to the Right, Intersecting