We just assumed that the Monetary and fiscal policy variable are kept constant when deriving the Aggregate Demand Curve. So any changes made in the following variable will shift the curve.

  1. Money Supply
  2. Consumption (household spending)
  3. Investment
  4. Government Expenditure

Graphically

An increase in the Supply of Money at a given price level will shift the Aggregate Demand curve Upwards (or right ).Another example can be explained graphically as :

shift in aggregate demand curve

Similarly in case of Government expenditure there would be an increase in Aggregate Demand or a rightward shift if the Govt expenditure increase. Comparatively with regard to an increase in Taxes there would be a downward (leftward shift in the aggregate demand curve as that would decrease the consumption level of individuals that as a result would decrease the overall output of the economy.

Read the following complete lecture about deriving the Aggregate Demand CurveĀ 

Deriving the Aggregate Demand Curve

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