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

Question

Quizplus · Accepted Answer

When demand-pull inflation occurs at potential GDP, the short-run aggregate supply (SAS) curve shifts leftward due to increased costs of production and resource constraints, not because the economy's long-term productive capacity (LAS) has changed.

If Demand Pull Inflation Occurs When the Economy Is Already