Question

Name some factors that could cause AD to shift, and say whether they would shift AD to the right or to the left.

Short answer

The factors that could cause Aggregate Demand (AD) to shift are consumer spending, investment spending, government spending, and net exports. An increase in consumer spending, investment spending, government spending, or net exports would shift AD to the right, indicating an increase in demand. Conversely, a decrease in any of these factors would shift AD to the left, indicating a decrease in demand.

Step-by-step solution

1. Understand Aggregate Demand

Aggregate Demand (AD) refers to the total demand for goods and services in an economy at a particular price level during a given time period. It is represented by the aggregate demand curve, which shows the relationship between the price level and the quantity of goods and services demanded. The curve slopes downward, indicating that as the price level falls, the quantity of goods and services demanded increases (and vice versa).

2. List Factors Impacting Aggregate Demand

The factors that could cause AD to shift are: 1. Consumer spending 2. Investment spending 3. Government spending 4. Net exports

3. Determine the Direction of Shift

Now we will examine whether these factors shift AD to the right (increase) or to the left (decrease): 1. Consumer spending: - Increase in consumer spending: Shifts AD to the right - Decrease in consumer spending: Shifts AD to the left 2. Investment spending: - Increase in investment spending: Shifts AD to the right - Decrease in investment spending: Shifts AD to the left 3. Government spending: - Increase in government spending: Shifts AD to the right - Decrease in government spending: Shifts AD to the left 4. Net exports: - Increase in net exports (exports > imports): Shifts AD to the right - Decrease in net exports (imports > exports): Shifts AD to the left