During a demand- pull inflation, if the Fed tries to maintain a level of real GDP above potential GDP,
A) the AD curve will shift rightward continuously and SAS curves will shift leftward continuously.
B) the SAS curve will shift leftward continuously and the AD curve will not shift.
C) there will be a one- time shift in the AD and the SAS curves.
D) the AD curve will shift rightward continuously and the SAS curve will not shift.

Question

Quizplus · Accepted Answer

To maintain real GDP above potential GDP, the Fed would increase aggregate demand, causing the AD curve to shift rightward continuously. This leads to higher prices, causing the SAS curve to shift leftward continuously as firms face higher costs.

During a Demand- Pull Inflation, If the Fed Tries to Maintain