Exhibit 14-4 Aggregate supply and demand curves

-As the aggregate demand curve shifts from AD₁ to AD₂ in Exhibit 14-4,the economy experiences:
A) cost-push inflation.
B) demand-pull inflation.
C) wage-push inflation.
D) hyperinflation.

Question

Exhibit 14-4 Aggregate supply and demand curves
 
-As the aggregate demand curve shifts from AD₁ to AD₂ in Exhibit 14-4,the economy experiences:
A) cost-push inflation. 
B) demand-pull inflation. 
C) wage-push inflation. 
D) hyperinflation.

Quizplus · Accepted Answer

When the aggregate demand curve shifts to the right, there is an increase in demand for goods and services in the economy, which leads to demand-pull inflation. This occurs because there is more demand than supply, causing prices to rise due to shortages in goods and services. Cost-push inflation occurs when there is an increase in production costs, such as wages or raw materials, causing prices to rise. Wage-push inflation occurs when workers demand higher wages, leading to increased production costs and ultimately higher prices. Hyperinflation is a very high and rapidly increasing rate of inflation, which is not typically caused by a shift in the aggregate demand curve alone.

Exhibit 14-4 Aggregate Supply and Demand Curves