Would a shift of AD to the right tend to make the equilibrium quantity and price level higher or lower? What about a shift of AD to the left?

Aggregate demand represents the total quantity of all goods and services demanded within an economy at various price levels. The AD curve shows the relationship between the price level and the real output (GDP) demanded in an economy.

A rightward shift in aggregate demand means that demand has increased for the same price level. It could be due to factors such as increases in consumer confidence, government spending, or investment. This leads to increased demand for goods and services, and firms need to produce more to meet this demand. When the AD curve shifts to the right, it causes an increase in both equilibrium quantity and the price level. To understand why, let's analyse the repercussions on the economy: 1. Increased demand for goods and services leads to a higher output level. This increase in demand moves the equilibrium point to a higher real GDP (output) level. 2. As output rises, the demand for resources (labour, capital, etc.) increases. This causes an increase in their prices, as businesses are willing to pay higher prices to acquire the necessary resources. 3. Higher resource prices lead to an upward pressure on the price level, as firms pass on these higher costs to consumers through higher prices for their goods and services. Therefore, a rightward shift in AD tends to make the equilibrium quantity and price level higher.

A leftward shift in aggregate demand means that demand has decreased for the same price level. It could be due to factors such as lower consumer confidence, reduced government spending, or lower investment levels. This leads to decreased demand for goods and services, and firms produce less to meet this lower demand. When the AD curve shifts to the left, it causes both the equilibrium quantity and the price level to decrease. To understand why, let's analyse the repercussions on the economy: 1. Decreased demand for goods and services leads to a lower output level. This decrease in demand moves the equilibrium point to a lower real GDP (output) level. 2. As output falls, the demand for resources (labour, capital, etc.) decreases. This causes a decline in resource prices, as businesses need fewer resources and are willing to pay lower prices for them. 3. Lower resource prices lead to a downward pressure on the price level, as firms pass on these lower costs to consumers through lower prices for their goods and services. Therefore, a leftward shift in AD tends to make the equilibrium quantity and price level lower.