Inflation can be explained by a shift in the aggregate curve.
A. Demand-pull, leftward, supply
B. Cost-push, rightward, supply
C. Demand-pull, leftward, demand
D. Cost-push, leftward, supply
Answer (2)
Demand-pull inflation results from increased aggregate demand.
Cost-push inflation results from decreased aggregate supply (leftward shift).
Option D correctly describes cost-push inflation as a leftward shift in the aggregate supply curve.
Therefore, the answer is D.
Explanation
Analyzing the Options Let's analyze the options to determine the correct explanation of inflation.
Option A a. Demand-pull inflation is caused by an increase in aggregate demand, not a leftward shift in supply. This option is incorrect.
Option B b. Cost-push inflation is caused by a decrease in aggregate supply (leftward shift), not a rightward shift. This option is incorrect.
Option C c. Demand-pull inflation is caused by an increase in aggregate demand, which shifts the aggregate demand curve to the right, not leftward. This option is incorrect.
Option D d. Cost-push inflation is caused by a decrease in aggregate supply, which shifts the aggregate supply curve to the left. This option is correct.
Examples
Understanding inflation is crucial for making informed economic decisions. For example, if you notice demand-pull inflation occurring (increased demand), you might anticipate rising prices and consider investing in assets that tend to appreciate during inflationary periods, such as real estate or commodities. Conversely, if cost-push inflation is evident (decreased supply), you might expect certain goods to become more expensive and adjust your spending habits accordingly. Recognizing these economic patterns helps individuals and businesses adapt to changing market conditions.
The correct answer to the question about inflation is option D, which describes cost-push inflation as a leftward shift in the supply curve. This reflects a decrease in aggregate supply leading to increased prices. Demand-pull inflation, on the other hand, involves an increase in demand leading to a rightward shift in the demand curve.
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