This graph shows what causes

Question

Quizplus · Accepted Answer

The graph shows an increase in aggregate demand (AD) which leads to an increase in both price level and output. This is indicative of demand-pull inflation, where an increase in demand pushes up prices. Cost-push inflation, on the other hand, is caused by an increase in production costs (e.g. wages, raw material prices) which leads to a decrease in aggregate supply and an increase in prices. Since the graph shows an increase in output, it is not indicative of cost-push inflation. Therefore, the best choice is B, demand-pull inflation.

This Graph Shows What Causes