4.3.3—AD determinants

Consumption, investment, government spending and net exports are the components of AD. Income, interest rates, expectations, taxes, wealth, exchange rates and foreign income can change those components.

A determinant that increases planned spending shifts AD right; one that reduces it shifts AD left. Trace the component before drawing the curve.

A lower interest rate may raise consumption and investment, shifting AD right; a fall in foreign income can reduce exports and shift AD left.

A change in the price level is movement along AD, while a change in a component determinant shifts AD.