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

There are various factors by which the AD curve shifts.

Step-by-step solution

Step 1. Definition

The AD curve is a curve that shows that if there is an increase in price level and you will be moving along the AD, so there will be an increase in the amount of real GDP which will be produced in an economy.

Step 2. Explanation

These are the factors due to which AD curve shift:

1. government policies: when the government increases its spending the aggregate demand also increases, and in the AD curve the aggregate demand shifts towards the right.

When a government increases tax then there is a decrease in consumption expenditure and vice-versa. Because of the tax reduction, there is an increase in the investment in the economy and that’s why the AD curve will shift towards the right. If the opposite happens then there is a leftward shift in the AD curve.

Step 3. 

2. firms and consumers' behaviors: when a consumer holds confidence in an economy their consumption will increase, and also due to this optimist they invest more in the economy and vice-versa. This confidence in the economy leads to a rightward shift in the AD curve. If the opposite happens then the AD curve will shift towards the left.