Question

1. What are the determinants to shift Aggregate Demand

2. Describe how TWO of those actually move aggregate demand

3. What are the determinants of Aggregate Supply

4. Describe how TWO of those actually move aggregate s

Answer 1

1) Determinants to shift aggregate demand are changes in consumption, investment, government spending and net exports. All these shift aggregate demand curve.

2) If consumption increases, not because of prices, then the aggregate demand curve would shift to right because higher consumption means more demand and hence rightward shift of the curve.

Similarly if the government spendings increase, the aggregate demand curve shift to right and vice versa.

3) Determinants of aggregate supply curve are government regulations, taxes or subsidies, input prices and technological level.

4) If input prices are increasing ie the prices of raw materials increase, there would be higher costs and hence supply would reduce. So aggregate supply curve would shift to left and vice versa.

If there is better technology, then the aggregate supply would shift to right because more output could be produced with the given input and the profits increase.