Question

What factors could cause Aggregate Demand (AD) to shift, and how would they affect the direction of the shift?

a) Increase in consumer confidence (Shift to the right)
b) Higher interest rates (Shift to the left)
c) Government spending cuts (Shift to the left)
d) Expansionary monetary policy (Shift to the right)

Answer 1

Aggregate Demand can shift due to factors such as consumer confidence, interest rates, government spending cuts, and expansionary monetary policy.

Step-by-step explanation:

Aggregate Demand (AD) can shift due to various factors. For example:

1. An increase in consumer confidence or business confidence can shift AD to the right, leading to a higher quantity of output and price level.
2. Higher interest rates can shift AD to the left, resulting in a lower quantity of output and price level.
3. Government spending cuts can also shift AD to the left, causing a decrease in both output and price level.
4. Expansionary monetary policy can shift AD to the right, leading to an increase in output and price level.