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

Consumer and company behavior, as well as government policy, all influence aggregate demand.

Step-by-step solution

Introduction

Aggregate demand (AD) refers to the entire amount of products and services that consumers in a given economy are willing to buy over a certain period of time. A shift in aggregate demand occurs when aggregate demand changes its connection with aggregate supply.

Behaviors of consumers and firms 

Consumer and firm behavior is influenced by economic stability. The aggregate demand curve will shift rightward if consumers are optimistic about the economy's future prospects, such as price stability or higher returns on investment. Furthermore, if producers have a positive outlook on production and investment, the aggregate demand curve will shift to the right. On the other hand, if the economy is unstable, consumers and producers may lose confidence, causing the AD curve to shift leftward.

Government Policy 

Fiscal policy is referred to as government policy. It is a component of an economy's aggregate demand. As the government spends more on roads, railways, sanitary facilities, and other infrastructure, aggregate demand rises. As a result, the AD curve is shifted to the right.

If the government lowers the tax rate, it lowers tax revenue, cutting its own spending and pushing the AD curve to the left.