During a demand-pull inflation, if the Fed tries to maintain a level of real GDP above potential GDP
A) there will be a one-time shift in the AD and the SAS curves.
B) the AD curve will shift rightward continuously and SAS curves will shift leftward continuously.
C) the AD curve will shift rightward continuously and the SAS curve will not shift.
D) the SAS curve will shift leftward continuously and the AD curve will not shift.

Question

Quizplus · Accepted Answer

During demand-pull inflation, if the Fed tries to maintain a level of real GDP above potential GDP, it implies continuous monetary stimulus to boost demand, shifting the AD curve rightward continuously. Simultaneously, sustained high demand leads to increased costs for firms (due to factors like higher wages and material costs), which shifts the SAS curve leftward continuously as firms pass these costs onto prices.

During a Demand-Pull Inflation, If the Fed Tries to Maintain