Question

2. Consider these different scenarios, draw an Aggregate demand curve in each case and determine the change (shift positive or negative, movement along the curve)

2.1 Government reduces taxes for consumers

2.2. There is a decrease in exports to the US

2.3. the inflation rate decreases from 4 to 2.2% in 2020

2.4. Due to the covid crisis, the unemployment rate increase from 4 to 7%

Answer 1

Changes in aggregate demand curve in the following scenario are explained below.

2.1 Government reduces tax for consumer

Here as a result of tax cut goods will become cheaper so demand will increase. Assuming aggregate supply constant, equilibrium will shift upward and price and quantity demanded both will increase.

2.2 Decrease in exports to USA

Decrease in exports to USA means that (if not misspelled) USA 's imports has been decreased. This will increase the aggregate demand because imports are deducted from aggregate demand.

According to munde flaming formula,

aggregate demand = C+I+G+NX

Here NX is net export ( Exports )

Note : Exports to USA means exports from rest of the world to USA, Exports of USA means Exports from USA. If exports from USA decreases then this will reduce aggregate demand as shown in figure given in question number 2.4

2.3 Decrease in Inflation Rate

​​​​​​Decrease in inflation rate will also increase aggregate demand because reduced inflation rate will make prices grow slowly. So here goods will remain cheaper in this year so aggregate demand will increase in the same way as shown in above figures

2.4 Unemployment rate Increased due to Covid 19 crisis.

​​​​​​Increase in unemployment rate due to Covid 19 indicates that production has been decreased so income level will also decrease. This will reduce purchasing power and aggregate demand will reduce.