Aggregate Demand Demand Curve and Supply Curve

Aggregate demand (AD) curve:
Quantity demanded on y-axis. Price on x-axis.

It is the relation between the price level and the real quantity of goods and services demanded, 4 components of which are consumption, investment, government spending, net exports (exports minus imports)

Aggregate supply (AS) curve:
Quantity supplied on the y-axis. Price on the x-axis.

Note:

• Shortrun AS (SRAS) is a different curve from long-run AS (LRAS).

Factors that shift aggregate supply (AS)
Factors that shift SRAS curve to the right:

• All three factors that shift LRAS plus:
• Temporary increase in the supply of resources.
• Favorable supply shocks.
• Changes in expectations for inflation - If suppliers expect goods to sell at much higher prices in the future, their willingness to sell in the current time period will be reduced and the SAS will shift to the left.

Factors that shift LRAS curve to the right:

• Improvements in productivity.
• Permanent increase in supply of resources e.g. labour and capital
• Increase in efficiency of resource utilization.

Shortrun aggregate supply (SRAS) is a different curve from long-run aggregate supply (LRAS)

Factors that shift aggregate demand
Factors that shift AD curve to the right:

• Increase in real wealth.
• Decrease in real rate of interest {saving becomes less attractive}.
• Positive business expectations/sentiment.
• Expectation of future inflation.
• Increase in income of other countries.
• Fall in the value of the domestic currency.
  
  The reverse of these factors would push AD curve to the left.
  As it is believed long-run productive capacity will improve when time passes, price falls (assume demand no change)