If Demand Pull Inflation Occurs When the Economy Is Already

question 55

Multiple Choice

If demand pull inflation occurs when the economy is already at potential GDP, then following the initial increase in aggregate demand, the

• A)AS curve shifts rightward.
• B)potential GDP line shifts rightward.
• C)AS curve shifts leftward.
• D)potential GDP line shifts leftward.
• E)None of the above are correct because demand-pull inflation shifts only the aggregate demand curve.

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Definitions:

Real Interest Rates

The interest rate modified to account for inflation, indicating the actual cost of borrowing and the genuine return for investors.

Appreciate

To increase in value or worth over time, commonly used in financial contexts.

Depreciate

The process by which an asset's value decreases over time due to use, wear and tear, or obsolescence.

Supply-of-Pounds Curve

The supply-of-pounds curve represents the amount of British pounds that suppliers (like the British) are willing to provide at different exchange rate levels, often used in the context of Forex markets.