Answer :
Hello! I'll provide a clear explanation for your question.
1. **AD-AS Graph**: In an Aggregate Demand-Aggregate Supply (AD-AS) graph, the Aggregate Demand (AD) curve represents the total demand for goods and services in an economy, while the Aggregate Supply (AS) curve represents the total supply of goods and services.
2. **Economic Growth and Inflation**: When economic growth is too rapid or over-heated, it can lead to an increase in Aggregate Demand (AD) beyond the economy's capacity to produce goods and services. This excess demand can push prices up, leading to inflation.
3. **Inflationary Gap**: In the AD-AS model, this situation is known as an inflationary gap. The AD curve shifts to the right, crossing the short-run Aggregate Supply (AS) curve at a point where the economy is producing above its potential output level. This leads to higher prices due to increased demand relative to supply.
4. **Type of Shock**: The type of shock assumed to cause this inflation is a demand-pull shock. Demand-pull inflation occurs when aggregate demand exceeds aggregate supply, resulting in upward pressure on prices.
5. **Conclusion**: In summary, rapid economic growth can cause inflation by creating an imbalance between demand and supply in the economy. This is illustrated in the AD-AS graph by a shift in the AD curve beyond the full-employment level, leading to inflationary pressures.
I hope this explanation helps you understand the relationship between economic growth, inflation, and the use of the AD-AS graph to analyze these concepts. If you have any more questions or need further clarification, feel free to ask!
