Question

Name some government policies that could cause aggregate demand to shift.

Short answer

Expansionary monetary polices and fiscal policies

Step-by-step solution

Definition

Aggregate demand:- It calculates the whole amount of demand for all finished goods and services made in a country.

Explanation

The change in the aggregate demand may be a leftward shift and the rightward shift. The aggregate demand shifts to the right as the elements of aggregate demand—consumption spending, investment spending, government spending, and spending on exports minus imports—increase. The Aggregate Demand will shift back to the left as these components fall.

fiscal policies

Fiscal policy influences aggregate demand via differences in government spending and taxation. Those elements affect work and household earnings, which then influence buyer spending and investment.

Expansionary Monetary policies

Monetary policy influences interest rates and the available amount of loanable reserves, which in turn affects several elements of aggregate demand. Tight or contractionary monetary policy that directs to more increased interest rates and a decreased amount of loanable funds will reduce two components of aggregate demand.