Refer to the graph. Suppose that the economy is at an initial equilibrium where the AD $A D _ { 1 } \text { and } A S _ { 1 }$ curves intersect. Demand-pull in?ation in the long run can best be illustrated as a shift of
A) $\mathrm { AS } _ { 1 } \text { to } \mathrm { AS }_2 \text {, and back again to } \mathrm { AS } _\text {1}.$
B) $A D _ { 1 } \text { to } A D _ { 2 } \text {, and back again to } A D _ { 1 } \text {. }$
C) $\mathrm { AS } _ { 1 } \text { to } \mathrm { AS } _ { 2 } \text {, consequently making } A D _ { 1 } \text { shift to } A D _ { 2 }$
D) $\mathrm { AD } _ { 1 } \text { to } A \mathrm { D } _ { 2 } \text {, consequently making } \mathrm { AS } _ { 1 } \text { shift to } \mathrm { AS } _ { 2 } \text {. }$

Question

Refer to the graph. Suppose that the economy is at an initial equilibrium where the AD $A D _ { 1 } \text { and } A S _ { 1 }$ curves intersect. Demand-pull in?ation in the long run can best be illustrated as a shift of
A) $\mathrm { AS } _ { 1 } \text { to } \mathrm { AS }_2 \text {, and back again to } \mathrm { AS } _\text {1}.$ 
B) $A D _ { 1 } \text { to } A D _ { 2 } \text {, and back again to } A D _ { 1 } \text {. }$ 
C) $\mathrm { AS } _ { 1 } \text { to } \mathrm { AS } _ { 2 } \text {, consequently making } A D _ { 1 } \text { shift to } A D _ { 2 }$ 
D) $\mathrm { AD } _ { 1 } \text { to } A \mathrm { D } _ { 2 } \text {, consequently making } \mathrm { AS } _ { 1 } \text { shift to } \mathrm { AS } _ { 2 } \text {. }$

Quizplus · Accepted Answer

Demand-pull inflation is a situation where aggregate demand exceeds aggregate supply at the existing price level causing prices to rise in the long run. This can be best illustrated by a shift of the AD curve to the right, from AD1 to AD2, consequently making AS1 to shift to AS2. Therefore, the best choice is D.

Refer to the Graph AD1 and AS1A D _ { 1 } \text { and } A S _ { 1 }AD1​ and AS1​

Refer to the Graph $A D _ { 1 } \text { and } A S _ { 1 }$