Question

Is it possible for a shift in the SRAS curve to directly cause a shift in the AD curve?

Answer 1

No, it is impossible for a shift in the SRAS curve to directly shift the AD curve because there are different factors will shift the aggregate demand and aggregate supply curve.

For example, a new advanced tech will shift the SRAS to the right at a lower cost and higher output but it will only cause a movement along the AD curve not shift the whole curve.

Similarly, an increase in the income of the people will shift the D curve but will only cause movement along the SRAS curve not shift the SRAS curve.

Factor that shifts the AD are:

• Change in the taxes or income,
• Investment in the economy,
• Expansionary or contractionary Federal policy.

Factors that shift the SRAS curve are:

• Change in the input cost.
• Change in the technology etc.