Explain the changes that would cause the dynamic aggregate demand curve to shift.

Expert Solution

Aggregate demand represents the total amount of the goods or services consumers are willing to buy during the given period.

The formula for Aggregate Demand = + Consumer spending on goods (C). + Investment spending on business (I). + Government spending on public (G). + Exports (X). + Imports (M).

Demand curve shifts with change in the inputs of the formula.

Changes in consumer spending when spending declines demand curve shifts to left or vice versa.Consumer spending changes due to changes in the taste and preference of the consumer.If there is change Interest rate of borrowing or lending if there is increase in Interest rate then the spending on business decreses and thus the demand curve will shift to the left and vice Government spending on public also shits the demand curve as when govt expend more more amount is left with public thus aggregate demand will increase and vice versa.If country export is more in comparison to import then the government left with more amount and corresponding the government expenditure will increase and consequently there will be shift in the demand curve.

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