Shifts in Aggregate Demand
A change in one of the components of aggregate demand will cause a shift in the aggregate demand curve. For example there might be an increase in export demand causing an injection of foreign demand into the domestic economy. The government may also increase its own expenditure and businesses may raise the level of planned capital investment spending.
- The general income levels:- If the general income level in the economy increases, the aggregate demand for goods and services also rises and vice versa, other factors remaining constant.
- The general price level:- If the general price level is high, the aggregate demand in the economy falls and vice versa, other factors remaining constant.
- The existing stock of capital:- If there is a large stock of existing capital, the employment opportunities increase and the general incomes rise leading to an increase in aggregate demand in the market and vice versa, other factors remain constant.
- Size of the population:- If the population size is big, the aggregate demand rises and vice versa, other factors remaining constant.
- Taxation policy:- If the government imposes heavy taxes on the population, the disposable income reduces and the aggregated demand falls and vice versa, other factors remaining constant.
- Subsidization policy:- If the government imposes heavy taxes on the population, the disposable income reduces and the aggregate demand falls and vice versa, other factors remaining constant.
- Size of the available stock of consumer goods: If there is a big size of stock of consumer goods and services, the aggregate demand rises and vice versa, other factors remaining constant.