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In the long run, demand-pull inflation

Multiple Choice
starts out with a shift in the AS curve but no shift of the AD curve.
starts out with a rightward shift in the AD curve, followed by a resulting leftward shift of the short-run AS curve.
starts out with a leftward shift in the AD curve, followed by a resulting rightward shift of the short-run AS curve.
involves a shift of the AD curve only, with no shift of the AS curve.

1 answer

The correct answer is:

starts out with a rightward shift in the AD curve, followed by a resulting leftward shift of the short-run AS curve.

Demand-pull inflation typically begins when aggregate demand (AD) increases, often due to factors like increased consumer spending, government spending, or investment. This rightward shift in the AD curve can lead to an increase in the overall price level. In response to this change in demand, the short-run aggregate supply (AS) may initially not adjust immediately, but as producers face increased costs or capacity constraints, the short-run AS may shift leftward, further contributing to inflation.