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Shifts in Demand - exports On the contrary under such...

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Shifts in Demand: As in the case of the individual demand curve, aggregate demand curve shows a tendency to shift leftward or rightward. The demand curve shifts in this manner when aggregate demand tends to rise without any change in the domestic price level. In other words this occurs when aggregate demand alters for causes other than changes in the price level. There are a variety of such causes contributing to shifts in aggregate demand. When the public authority increases its expenditure, more purchasing power is put in the hands of people who create an increasing demand. If the rates of taxes are reduced then again people’s capacity to spend increases and aggregate demand will rise. International demand and supply conditions may also contribute to shifts in the aggregate demand curve. Rising price level in countries abroad may make exports of a country relatively cheaper and cause an increased demand for
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Unformatted text preview: exports. On the contrary under such conditions imported goods become relatively dearer, the demand for which declines and this results in a rise in demand for indigenous products. When all these factors are moving in the opposite direction, they will result in a fall in the aggregate demand and rightward shift in the AD curve. In figure 11, DD is the original demand curve. On this demand curve at a given price level P 1 aggregate demand is of the size q 1 . But when the demand curve shifts rightward or upward, as D 1 D 1 then at the same price level P 1 demand increases from q 1 to q 2 . This means that there has been an increase in demand at the same price. If we consider the higher demand curve D 1 D 1 to be the initial demand curve, then the demand curve DD denotes leftward or downward shift. This time it means that at the same price there has been a decrease in demand....
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