If demand pull inflation occurs when the economy is already at potential GDP, then following the initial increase in aggregate demand, the
A) LAS curve shifts rightward.
B) SAS curve shifts leftward.
C) LAS curve shifts leftward.
D) SAS curve shifts rightward.

Question

Quizplus · Accepted Answer

Demand pull inflation occurs when the economy is already at potential GDP, and an increase in aggregate demand leads to a shortage of goods and services. This shortage drives prices up, causing inflation. In this case, the SAS curve shifts leftward to show the increase in prices. The LAS curve would not shift as potential GDP remains unchanged.

If Demand Pull Inflation Occurs When the Economy Is Already