Q. Explain AS-AD model and inflation?

Even though AS-AD permits changes in the price level, it doesn't allow for persistent inflation or deflation. We can't have continued decreases or increases in the price level if nominal wages are to be constant as this would result in continued increases or decreases in the real wages that doesn't make sense (remember that we have removed growth when we do analysis). 

There will of course be periods with deflation/inflation in the model since prices change however deflation/inflation should disappear when economy reaches a new equilibrium. We can remove assumption of fixed nominal wages and model will then allow for persistent inflation.