Question

In the short run, an increase in the aggregate price level caused by a shift in the aggregate demand curve first causes:

Answer 1

Answer: b. movement along SRAS

Explanation:

When the price level changes due to an increase in the demand that forces the Aggregate demand curve to shift rightward, the immediate effect would be that the Aggregate demand curve would intersect the Short Run Aggregate supply at a new point.

This new point will see a movement along the SRAS from its previous equilibrium point to the new equilibrium intersection point with the AD curve. In other words, the new point will be on the same SRAS curve just moving from one point to another.