Shifts In Aggregate Demand

We have seen that total spending in the economy tends to decline as the price level rises, holding other things constant. But those other things tend to change; and their influences produce changes in aggregate demand. What are the key variables that lead to spits in aggregate demand?

The second Category is Gamow variables, or variables that are determined outside ‘the AS-AD framework As Table 2~1 shows, some of these variables (such as wars or revolutions) are outside the scope of macroeconomic analysis proper, some (such as foreign economic activity) are outside the control of domestic policy, and others (such as the stock market) have significant independent movement.

Figure 2~7(b) on page 485 shows how the changes in the variables listed in Table 2~1 would affect the AD curve. To test your understanding, construct a.similar table showing forces that would tend to decrease aggregate demand (see question 4 at the chapter’s end).