Question

Describe the impact of shift in aggregate supply and aggregate demand

Answer 1

Aggregate Demand = C + I + G + (X – M) where C=sonsumotion, I=Investment, G=Government Spending, X-M=net export. When there is monetary expansion the Aggregate demand curve shifts to the right and vice versa. The shift directly impacts the equilibrium level of income and spending. When it shifts to the right there is an increase in both the equilibrium level of income and spending and vice-versa.

A shift of the aggregate supply leads to induces the price level to fall resulting in an increase in the real GDP. But in the long run the impact of the shift stabilizes the price levels and the prices of goods and services move higher while responding to the shift.