According to the simple extended AD-AS model, cost-push inﬂation does not last in the long run if
the government leaves the economy alone.

Question

Quizplus · Accepted Answer

In the simple extended AD-AS model, cost-push inflation is considered a temporary shock that shifts the short-run aggregate supply curve leftward. However, over time, the economy will adjust and the long-run aggregate supply curve will shift rightward, returning the economy to the original equilibrium with lower prices and the same level of output. If the government does not intervene with policies that distort markets or exacerbate the inflationary pressures, the adjustment process will occur smoothly and efficiently.

According to the Simple Extended AD-AS Model, Cost-Push Inﬂation Does