Aggregate Demand

key terms

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aggregate demand

exchange rate

interest rate

investment

fiscal policy

net exports

What can shift the aggregate demand curve?

aggregate demand increases (the curve shifts to the right) when:

Consumption Increases: Investment Increases: Government Increases: Net exports Increases:
Consumer confidence increases Business confidence increases
Example
Government spending increases* Foreigners' preference for your goods increases
Income taxes decrease*
Example
Interest rate decreases** Exchange rate decreases

* If changes to taxes and government spending are designed to change output or inflation by influencing the aggregate demand curve, it is called fiscal policy.
** If changes to the interest rate are caused by the central bank changing the money supply in order to influence output or inflation, then it is called monetary policy.

Illustration of aggregate demand shift
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