A constant inflation in the AD/AS macro model is only possible when

Question

Quizplus · Accepted Answer

Constant inflation in the AD/AS model means that the overall price level is increasing at a steady rate over time. This can only happen when both aggregate demand (AD) and aggregate supply (AS) shift upwards at the same uniform rate. If AD shifts upwards at a faster rate than AS, the result would be inflation with increasing output (demand-pull inflation). If AS shifts upwards at a faster rate than AD, the result would be deflation with decreasing output (cost-push deflation). Therefore, the only option that allows for constant inflation is C, where both AD and AS shift upwards at the same uniform rate.

A Constant Inflation in the AD/AS Macro Model Is Only