MYTUTOR SUBJECT ANSWERS

601 views

What factors cause the aggregate demand curve to shift?

The equation for aggregate demand is defined as C+I+G+(X-M) where C is consumption by households on things such as cars, furniture and petrol, I is investment by firms in new technology, factories and inventories, G is government spending and X-M represents net exports i.e. total exports minus total imports. Any factor which has an impact on one or more of these components will shift the aggregate demand curve. A rise in taxes such as VAT and income tax will reduce consumption and a rise in corporation tax will reduce investment both leading to a fall in aggregate demand represented by a leftward or downward shift of the AD curve in a classic AD-AS diagram. An increase in government spending just before a general election for example will increase AD causing a rightward or upward shift of the AD curve. An increase in the exchange rate will generally reduce AD by making imports less expensive and exports more expensive worsening the balance of trade in goods and services. An increase in the interest rate will make it more costly for firms to borrow and therefore to invest. This will therefore have a negative effect on AD through its impact on the I component. An increase in subsidies or tax relief for large companies would be likely to stimulate investment leading to an upward shift in AD.

Jake H. A Level Economics tutor, A Level Maths tutor, GCSE Economics ...

2 years ago

Answered by Jake, who tutored A Level Economics with MyTutor


Still stuck? Get one-to-one help from a personally interviewed subject specialist

58 SUBJECT SPECIALISTS

£20 /hr

Chris B.

Degree: Economics (Bachelors) - Durham University

Subjects offered:Economics, Maths+ 2 more

Economics
Maths
Further Mathematics
-Personal Statements-

“About me: I am currently in my first year of studying Economics at Durham University. I have been tutoring maths for about two years now, so have had plenty of experience passing on my knowledge and interest in my subjects to younger ...”

£26 /hr

Oscar A.

Degree: Politics, Philosophy and Economics (Bachelors) - Oxford, Balliol College University

Subjects offered:Economics, -Oxbridge Preparation-

Economics
-Oxbridge Preparation-

“2nd year Oxford PPEist, prize-winner and experienced tutor offering economics tutorials”

£24 /hr

Grace D.

Degree: Economics (Bachelors) - Newcastle University

Subjects offered:Economics, Maths+ 2 more

Economics
Maths
Geography
English

“About me:I am currently in my second year of an Economics degree at Newcastle Univeristy. I am very passionate about my subject and am a leading member of the Economics Society there, in addition to competing in various Business and ...”

About the author

Jake H.

Currently unavailable: until

Degree: BSc Economics (Bachelors) - Bristol University

Subjects offered:Economics, Maths

Economics
Maths

“My name's Jake and I'm here to help you with GCSE and A-level Economics and Maths as well as the bane that is the personal statement!”

MyTutor guarantee

You may also like...

Posts by Jake

What factors cause the aggregate demand curve to shift?

What is Pareto efficiency?

Other A Level Economics questions

What is price elasticity of demand and how is it measured?

Explain what is meant by a semi-fixed exchange rate? With reference to the BBC news story in the link below, explain why the Nigerian central bank increased interest rates and devalued their currency (the naira)?

What is Macroeconomics?

What does a supply/demand diagram show?

View A Level Economics tutors

We use cookies to improve your site experience. By continuing to use this website, we'll assume that you're OK with this. Dismiss

mtw:mercury1:status:ok