The statement regarding the up-sloping aggregate supply curve refers to the relationship between aggregate demand (AD) and aggregate supply (AS) in the economy. An up-sloping aggregate supply curve indicates that as the price level increases, the quantity of goods and services supplied also increases, at least in the short run.
When there's a rightward shift of the aggregate demand curve—often caused by factors like increased consumer confidence, government spending, or lower interest rates—the economy can experience demand-pull inflation. This occurs when the total demand for goods and services in an economy exceeds the economy's ability to produce them, pushing up the price levels.
In such a situation, if the aggregate supply curve is steep (which it often becomes in the short run as firms reach capacity), the increase in demand may lead to higher prices rather than a proportionate increase in output. Consequently, the economy may see more inflation (demand-pull inflation) rather than a significant increase in real output.
In summary, with an up-sloping aggregate supply curve, a rightward shift in aggregate demand may primarily lead to increased prices rather than a significant rise in output, particularly when the economy is near or at full employment. This reflects the balance between supply capabilities and the rising demand, highlighting the importance of supply constraints in the short term.