ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The aggregate demand curve shifts to the right as the components of aggregate demand-consumption spending, investment spending, government spending, and spending on exports minus imports-rise. The AD curve will shift back to the left as these components fall.

Detailed explanation-2: -A shift of the AD curve to the right means that at least one of these components increased so that a greater amount of total spending would occur at every price level. This is called a positive demand shock.

Detailed explanation-3: -Increased government spending is likely to cause a rise in aggregate demand (AD). This can lead to higher growth in the short-term. It can also potentially lead to inflation.

Detailed explanation-4: -A reduction in taxes or an increase in transfer payments causes an increase in consumer wealth and investments, driving the real GDP up and in turn shifting aggregate demand rightward to AD2. The same effect is felt when the government increases its spending on something like healthcare.

Detailed explanation-5: -The aggregate demand curve tends to shift to the left when total consumer spending declines. 2 Consumers might spend less because the cost of living is rising or because government taxes have increased. Consumers may decide to spend less and save more if they expect prices to rise in the future.