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How is an aggregate demand curve derived? What would cause the aggregate demand curve...

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kila4112 | Student, Undergraduate | Honors

Posted February 4, 2014 at 4:42 AM via web

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How is an aggregate demand curve derived? What would cause the aggregate demand curve to shift to the right?

Macro Econ 3rd ed., McEachern

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justaguide | College Teacher | (Level 2) Distinguished Educator

Posted February 4, 2014 at 6:37 AM (Answer #1)

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In an economy, the total demand for goods and services is referred to as the aggregate demand. The quantity of goods and services bought is dependent on the price. The aggregate demand curve is a graphical representation of the price versus the gross domestic produce; or the GDP at different prices levels.

The shifting of the demand curve to the right implies that for the same price, the total goods and services being bought has increased. There are many factors that can result in this. Some of these include changes in interest rates, changes in government spending and investor demand. If the government were to increase spending to boost the economy, the aggregate demand curve shifts to the right. Similarly, a decrease in interest rates leads to the aggregate demand curve shifting to the right. An improvement in the state of the economy with rising income levels also increases the GDP at any particular price. This again shows up as the aggregate demand curve shifting to the right.

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