Reference no: EM131386317

Factors that cause a shift in the aggregate demand curve are the following although the list is not exhaustive. 1. Any change in the components of aggregate expenditure. When consumption expenditure, investments expenditure, government expenditure, and exports increase AD curve shifts right. When imports increase AD curve shifts to the left. 2. When personal taxes increase, you spend less, so does and economy, for a given price level RGDP falls shifting the AD curve left. 3. An increase in interest rates, increases the cost of borrowing, consumption goes down, so does RGDP shifting the AD curve left. 4. When the dollar appreciates, foreign goods become cheaper, as such imports of US from other countries increase, but exports of US after the appreciation of the dollar falls because now US goods are more expensive to purchase for foreigners, the fall in X and the rise in M, causes AD curve to shift left. Thus a depreciation of the US dollar, shifts AD curve here at home to the right. 5. When money supply increases in an economy (expansionary monetary policy by the Federal Reserve), spending increases, AD curve shifts right. 6. Contractionary fiscal policy (decreases in government spending, increases in taxes), shifts AD curve to the left. Here is your first question, what are some factors that cause a rightward shift in the AD curve? Be sure to describe the mechanism at work. You can choose interest rates here as I explained above, but be sure to describe a fall in interest rates, since AD curve shift to a rise and in interest rates have already been explained. Use original examples of the mechanism at work. Short run aggregate depicts the positive relationship between prices and RGDP, holding other influences constant. When prices go up in the short run, profits rise because wages are assumed to be constant in the short run, the rise in profits induces a representative producer to produce more goods causing RGDP to rise. The factors that cause a shift in the SAS curve are; 1.) Change in price of inputs, such as the wage rate. When the wage rate increases, SAS curve shifts left 2.) Technological advances, shift the SAS curve right, since as cost saving technology increases profits, therefore production and RGDP. 3.) A rise in business taxes shift the SAS curve left, since paying taxes, decreases profitability and production, when production falls RGDP falls 4.) Negative supply shocks such as an earthquake, flood, and hurricane shift the SAS curve left since the shock, negative effects what is available and can be produced. Here is your second question, what are some factors that shift the SAS curve? Be sure to describe the mechanism at work.