-Refer to the above graph.Assume that the economy is at equilibrium at AD₁ and AS₁ and then is hit with both demand-pull and cost-push inflation.If this occurs,then,in the short run: A) AD₁ will shift to AD₂,AS₂ will shift to AS₃,the price level will be at P₂,and output will be at Q₂. B) AS₁ will shift to AS₃,AD₂ will shift to AD₁,the price level will be at P₃,and output will be at Q₃. C) AD₁ will shift to AD₂,AS₁ will shift to AS₂,the price level will be at P₂,and output will be at Q₂. D) AD₁ will shift to AD₂,AS₁ will shift to AS₂,the price level will be at P₃,and output will be at Q₁.

Question

Quizplus · Accepted Answer

In the short run, demand-pull inflation shifts AD₁ to AD₂, and cost-push inflation shifts AS₁ to AS₂. This results in a higher price level at P₃ and unchanged output at Q₁.

-Refer to the Above Graph