Unit 3.2·Macroeconomics

Shifts of the AD Curve

Variations in Economic Activity: Aggregate Demand and Aggregate Supply

AO2·AO4·Diagram required

Syllabus requirement

A change in any of the AD determinants will cause the AD curve to shift rightward or leftward.

Assessment objectives

AO2 Application and AnalysisAO4 Use of Appropriate Skills

Required diagram: Diagram showing rightward or leftward shifts of the AD curve due to changes in components like C, I, G, or (X − M).

Summary

This topic explains what causes the aggregate demand (AD) curve to shift. Aggregate demand equals planned spending on domestically produced goods and services (AD = C + I + G + (X - M)), and changes in consumption, investment, government spending or net exports shift the whole AD curve right or left. Understanding these determinants allows analysis of how fiscal, monetary, confidence and external factors alter real output demanded at each price level.