0
$\begingroup$

From what I understand, the AD curve on the AD AS model represents how the price level and real GDP will change when the AD increases or decreases. So if you go up the AD curve, the price level increases, and the GDP decreases.

enter image description here

I am a bit confused about demand-pull inflation. When that happens, my teacher draws another line. I thought that if you go up the AD curve, that already represents an increase in AD? Why do we need to draw another curve? What's the difference between going up the AD curve (so that price level increases, real GDP decreases) and demand pull inflation (drawing a new line which is to the right)?

$\endgroup$

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Browse other questions tagged or ask your own question.