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.
- Money Supply
- Consumption (household spending)
- Investment
- 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 :
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 Curve
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