Three Reasons For The Overward Sloping Aggregate Demand Curve

Any change that lowers the quantity that buyers wish to purchase at any given price shifts the demand curve to the left.

If there is a change in demand resulting in the shift of the demand curve. Price is not a factor in this curve. The shifting of the demand curve is due to some factors. As the demand increase the shift will be to the right and if there is a decrease the shift will be to the left.

One non-price item that has definitely impacted my demand is the recent increase in minimum wage. Since I have seen a pay increase I am now able to buy things I would not have been able to afford before. Looking at this long term it is likely that the overall price of goods will increase and the market will eventually return to equilibrium. Another factor that has caused me to change my purchasing habits is my change in tastes. Recently I have developed a taste for organic foods so I have decided to stop buying fast food all together as well as processed foods from the supermarket. So in terms of my individual demand curve for fast foods and processed foods it will cause a leftward shift. This will also cause a rightward shift of the organic foods demand curve. Another instance involves changes in expectations. This factor has the ability to simultaneously affect supply and demand. If I expect that prices for goods are going to increase at a later date my demand will increase now. If suppliers foresee prices rising in the future they will supply less now and supply more when the prices are higher. Overall there are many different factors that affect how individuals

The main determinant of I is interest rates charged by institutions that loan money (see Graph 3); that is because when interest rates are low, businesses tend to loan more. Therefore, companies will have more capital to spend in their businesses. This might increase AE enough to shift the AD curve to the left (see Graph 2). The I value is also susceptible to three shifters: while positive changes in technology (1), in expectations (2), and a decrease in businesses taxes (3) will increase I and shift AD curve to the right, the opposite changes will cause the opposite effect. Companies might also increase/decrease spending by reacting to a depleted/built-up inventory (see Graph 4). Both situations will influence in the way that businesses spend their money: while depleted inventories will stimulate spending of I when companies decide to produce, built-up inventories have the inverse result.

Three reasons the aggregate-demand curve slopes downward are the wealth effect, the interest-rate effect, and the exchange rate effect. The wealth effect explains that when the price level decreases, each consumer is wealthier because the real value of his or her dollar has increased. Wealthier consumers spend more, increasing the demand for consumption goods and services. Conversely, if the price level rises, the real value of the dollar will decrease, effectively making consumers poorer. Poorer consumers will spend less on consumption, decreasing the demand for goods and services.

This diagram shows how an increase in aggregate demand from AD to AD1 can cause and increase in real GDP from Y1 to Y2. However the price level has also risen from P1 to P2, this is demand pull inflation as aggregate demand is outstripping aggregate supply.

There are some loopholes for the demand curve sloping upwards. Sometimes higher prices could increase demand on certain products and services which would cause the demand curve to slope upward. The Giffen Good is one condition which refers to products/services where consumers reduce their consumption as their incomes rise. If my income rose and I use to ride a bus, I would most likely switch out a bus ticket for my own car. Higher prices increase demand, because a car represents a large proportion of my budget. Conspicuous Consumption is where consumers purchase luxury items because of the status that comes with it. These consumers might have higher demand for expensive items because of the status they want to achieve.

Economics is defined as the study of how human beings coordinate their wants and desires, given the decision-making mechanisms, social customs, and political realities of the society. (Colander) Evaluating the trends in consumer consumption will help answer what, and how much, to produce and for whom to produce it. The law of supply and demand is a very important process of economics. The law of supply states that quantity supplied rises as price rises, when all other factors remain constant, and the law of demand states that the quantity of a good demanded is inversely related to the good’s price. (Colander) Therefore, when the price of a good goes down, the quantity of the good demanded will go up, and when the price of a good goes down, the quantity of the good demanded will go up. There are many factors that will affect the changes of consumption patterns like a change in the supply and a change in the demand.

The long-run aggregate supply curve "describes the period when input prices have completely adjusted to changes in the price level of final goods." This curve occurs when the short-run aggregate supply curve reaches equilibrium. The short-run aggregate supply curve approaches the long-run aggregate supply curve. Represented graphically, this distinction is clear. The short-run aggregate supply curve is an upward sloping curve where an increase in the price level will result in an

Low interest rates (charges that borrowers pay to lenders for using the borrowed money), would cause a shift in demand (the capability and willingness to consume a commodity at a given price at a given time) to the right (from D to D1). The reason for this is because consumers are predicted to borrow more money at lower interest rates (as the rewards for saving money are less than if interest rates were higher),

Another Macroeconomic variable that affect demand and supply is wage rates. This variable falls under the cost of productions and it has the same behavior as energy prices explained above. According to Brue (2014), “ 75 percent of the average firm’s costs are wages and salaries” (p. 288). So, as wage rate and production cost rise, supply decrease, price increase and the curve shift to the left. Also, recall, consumers’ demand will fall as prices rises and the number of supply available for sale will increase.

There are five causes of demand-pull inflation. The first is a growing economy. When families feel confident, they spend more instead of saving. They expect to get raises and better jobs. They know their homes and other investments will increase in value. They feel that the government is doing the right thing in guiding the economy. They will also borrow more, either with auto or home loans, or credit cards. If they don't borrow too much, this is a healthy cause of inflation. It creates gradual and steady price increases.

That is the output is lower than the natural rate of output, so CB plays a role to push up output level to the efficient level. Another explanation is that the candidates of political election make pressure to expand the economy in order to improve the possibility of success. This loss function includes the variance of output and thus CB has the role of stabilizing the economy. The aggregate supply is simply defined by Lucas island model in this essay: . is the private agency expectation for inflation, is the aggregate supply shock with mean 0 and constant variance . Then rearrange supply function, we obtain the short-run Phillips Curve (PC) . This illustrates in Figure 1.

This as shown in the diagram, Demand-pull inflation happens when aggregate demand (AD) increases in an economy and intersects the short run aggregate supply curve (SRAS) to the right of where SRAS and long run aggregate supply (LRAS) cross. This causes some inflation to occur in the short run, and even more in the long run as the economy adjusts (and the labor market moves back to equilibrium). Demand-pull inflation can occur for an reason that causes AD to increase but the most common are expansionary fiscal and monetary policy, and positive expectations about the future (increased growth/income expectations).

From the graph, the aggregate demand is initially at AD1. However, following the increase in disposable income, the demand shifts to AD2 to depict an increase in demand. This shift causes a corresponding change in prices from P1 to P2, which is an increase in the local pricing of commodities. From the previous information, international prices were higher than local prices. Consequently, the increase in local pricing reflects a situation where the gap in prices closes. A notable change is the increase in GNP, which comes from the rising expenditure of local consumers.