Refer to the Graph Above

Multiple Choice

Refer to the graph above. Assume that the economy is initially in equilibrium at the intersection of AD₁ and AS₁. Suppose that there is economic growth which shifts AS₁ to AS₂. Mainstream economists would suggest that the application of a monetary rule to keep prices constant might produce demand-pull inflation because the investment spending might:

A) Increase and cause the aggregate demand curve to shift from AD₁ to AD₄
B) Decrease and cause the investment demand curve to shift from AD₁ to AD₄
C) Increase and cause the aggregate demand curve to shift from AD₁ to AD₂
D) Decrease and cause the investment demand curve to shift from AD₁ to AD₂