-Refer to the above diagram.Assume that nominal wages initially are set on the basis of the price level P₂ and that the economy initially is operating at its full-employment level of output Q_f.In the long run,demand-pull inflation could best be shown as: A) a move from b to c on AS₂. B) a move from b to f to d. C) a change of aggregate supply from AS₂ to AS₁. D) a move from b to d.

Question

Quizplus · Accepted Answer

In the long run, demand-pull inflation is shown by a shift of the aggregate demand curve to the right, which leads to an increase in the price level and a movement along the aggregate supply curve from b to d.

-Refer to the Above Diagram