-Refer to the above diagram.The initial aggregate demand curve is AD₁ and the initial aggregate supply curve is AS₁.In the long run,demand-pull inflation is best shown as: A) a shift of aggregate demand from AD₁ to AD₂ followed by a shift of aggregate supply from AS₁ to AS₂. B) a move from d to b to a. C) a shift of aggregate supply from AS₁ to AS₂ followed by a shift of aggregate demand from AD₁ to AD₂. D) a move from a to d.

Question

Quizplus · Accepted Answer

Demand-pull inflation occurs when there is an increase in aggregate demand, which shifts the AD curve to the right. This leads to an increase in the price level and output. In the long run, the AS curve will also shift to the right, as firms increase their production capacity in response to the higher demand.

-Refer to the Above Diagram