In the dynamic aggregated demand and aggregate supply model,inflation occurs if
A)the AD curve shifts more to the right than the LRAS curve.
B)the SRAS curve shifts more to the right than the AD curve.
C)the AD curve shifts to the left and the SRAS curve shifts to the right.
D)the AD curve shifts to the left and the LRAS curve shifts to the right.

Question

Quizplus · Accepted Answer

Inflation occurs when the aggregate demand (AD) curve shifts more to the right than the long-run aggregate supply (LRAS) curve, leading to an increase in both price level and output level in the short-run. This is because the economy operates above its potential output level, causing firms to increase prices due to high demand. Therefore, option A is the correct answer. Option B is incorrect because if the SRAS curve shifts more to the right than the AD curve, it leads to a decrease in both price level and output level in the short-run. Option C is incorrect because if the AD curve shifts to the left and the SRAS curve shifts to the right, it leads to a decrease in price level and an ambiguous effect on the output level. Finally, option D is incorrect because if the AD curve shifts to the left and the LRAS curve shifts to the right, it leads to a decrease in the price level but an increase in the output level.

In the Dynamic Aggregated Demand and Aggregate Supply Model,inflation Occurs