Question

Would a shift of AD to the right tend to make the equilibrium quantity and price level higher or lower? What about a shift of AD to the left?

Short answer

Yes there are varied solutions to the shift of the AD curve.

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

Suppose that the aggregate supply doesn’t change and remains constant. When an AD curve shifts towards the right, there is an optimistic or positive effect on real GDP and the price level. That means the real GDP will increase and there is upward pressure on the price level when there is a right shift on the AD curve.

Step 3. Additional explanation

On the other hand, if we suppose that the aggregate supply remains constant. When the AD curve shifts towards the left there is a negative effect on both the price level and the real GDP. This means that the real GDP will fall and also there is a fall in the price level.