If demand- pull inflation occurs when the economy is already at potential GDP, then, following the initial increase in aggregate demand, the
A)LAS curve shifts rightward.
B)SAS curve shifts leftward.
C)SAS curve shifts rightward.
D)LAS curve shifts leftward.

Question

Quizplus · Accepted Answer

When demand-pull inflation occurs at potential GDP, the economy is operating at full capacity. The initial increase in aggregate demand leads to higher prices, causing the short-run aggregate supply (SAS) curve to shift leftward as firms face higher production costs and reduce output.

If Demand- Pull Inflation Occurs When the Economy Is Already