(Solved): Refer to the above diagram. The initial aggregate demand curve is AD1 and the initial aggregate ...

Refer to the above diagram. The initial aggregate demand curve is $A{D}_1$ and the initial aggregate supply curve is ${\mathrm{AS}}_1$. If government offsets the decline in real output resulting from short-run cost-push inflation by increasing aggregate demand from $A{D}_1$ to $A{D}_2$ : real output will rise above $Q_f$. it is possible that aggregate supply will shift rightward from ${\mathrm{AS}}_2$ because nominal wage demands will rise. the price level will rise from $P_2$ to $P_3$. the price level will rise from $P_1$ to $P_2$.