Refer to the above graph.Given that the economy is at an initial equilibrium where the AD₁ and AS₁ curves intersect, demand-pull inflation in the short run can best be represented by a shift from: A)AS₁ to AS₃. B)AD₁ to AD₂. C)AS₁ to AS₂. D)AD₂ to AD₁.

Question

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Demand-pull inflation occurs when aggregate demand increases and exceeds aggregate supply, leading to an increase in the general price level. In the short run, this can be represented by a shift in the ADS curve to the right. Option B shows the ADS curve shifting from AD₁ to AD₂, indicating an increase in aggregate demand and a potential for demand-pull inflation. Options A and C show shifts in the AS curve, which would represent changes in aggregate supply rather than demand. Option D shows a shift in the opposite direction, indicating a decrease in aggregate demand, which would not lead to demand-pull inflation.

Refer to the Above Graph