Assume that the short- run AS is upward sloping. If the government chooses to increase government expenditure or to decrease taxes, according to the Aggregate Supply - Aggregate Demand model:

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When the government increases government expenditure or decreases taxes, this will shift the Aggregate Demand (AD) curve to the right. As a result, both the price level and GDP will increase. However, since the short-run Aggregate Supply (AS) curve is upward sloping, the increase in output will come at the cost of higher prices. Therefore, the price level will rise as well.

Assume That the Short- Run AS Is Upward Sloping