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Refer to the diagram. Assume that nominal wages initially are set based on the price level P2 and that the economy initially is operating at its full-employment level of output Qf. In the short run, cost-push inflation could best be shown as

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Martebi

In the short run, cost-push inflation could best be shown as a leftward shift of aggregate supply from AS2 to AS3.

What is cost-push inflation?

Cost-push inflation is known to often take place if the total prices increase (inflation) as a result of an increase in the cost of wages and also that of raw materials.

Hence,  In the short run, cost-push inflation could best be shown as a leftward shift of aggregate supply from AS2 to AS3.

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