Refer to the above diagram.The initial aggregate demand curve is AD₁ and the initial aggregate supply curve is AS₁.Cost-push inflation in the short run is best represented as a: A)leftward shift of the aggregate supply curve from AS₁ to AS₂. B)rightward shift of the aggregate demand curve from AD₁ to AD₂. C)move from d to b to a. D)move from d directly to a.

Question

Quizplus · Accepted Answer

Cost-push inflation is a decrease in aggregate supply due to an increase in the costs of production. This would shift the aggregate supply curve to the left from AS₁ to AS₂. There is no reason for a rightward shift in the aggregate demand curve. The movements from d to b to a or directly from d to a do not accurately represent the impact of cost-push inflation.

Refer to the Above Diagram