An increase in aggregate demand would move the economy up and to the right along a short run aggregate supply curve and up and to the left along a Phillips Curve.

Question

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An increase in aggregate demand would shift the short run aggregate supply curve to the right, causing an increase in both output and the price level. This movement up and to the right along the short run aggregate supply curve is known as a demand-pull inflation. As for the Phillips Curve, an increase in aggregate demand would result in a decrease in the unemployment rate and an increase in inflation, causing the Phillips Curve to move up and to the left.

An Increase in Aggregate Demand Would Move the Economy Up