3.6: Changes in the AD-AS Model in the Short Run

Question 1

Stagflation

Answer 1

Stagnate economy + inflation; recessionary gap

Question 2

Demand-Pull Inflation (AD increases)

Answer 2

Demand pulls up prices, consumers want goods and services so they bid up prices

Question 3

Cost-push inflation (SRAS decreases)

Answer 3

Higher production costs increase prices; a negative supply shock increases the cost of resources and investment spending.