Question

When the price level rises because the AD curve shifts rightward, the economy experiences which of the following?

A. Cost-push inflation
B. Demand-caused recession
C. Demand-pull inflation
D. Cost-caused recession

Answer 1

When the price level rises because the AD curve shifts rightward, the economy experiences demand-pull inflation.

Step-by-step explanation:

When the price level rises because the AD curve shifts rightward, the economy experiences demand-pull inflation. This type of inflation occurs when there is an increase in aggregate demand that exceeds the economy's capacity to produce goods and services.

Here is a step-by-step explanation:

1. An increase in aggregate demand (AD) shifts the AD curve to the right.
2. The new equilibrium point is at a higher price level and higher real GDP.
3. This increase in aggregate demand leads to an increase in the general price level, causing inflation.