summarize the factors that would shift the aggregate demand curve to the right. Use specific examples.

Expert Solution

The aggregate demand curve shifts to the right as the factors of aggregate demand, i.e., consumption spending, investment spending, government spending, and spending on exports minus imports, rise.

In short, aggregate demand curve shifts right when economy expands. Since, the government has influence over several of the factors of aggregate demand, it has the power to shift AD through its policy choices. Higher government spending causes AD to shift to the right. Tax policy affect consumption and investment spending. tax cuts for individuals will tend to increase consumption demand. Tax policies can also boost up investment demand by offering lower tax rates for corporations.

Example: During a recession, when unemployment is high and many businesses are suffering low profits or even losses, the US Congress often passes tax cuts. During the recession of 2001, a tax cut was enacted into law.

Rahul Sunny answered 1 year ago

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