4.3.5—AD shifts

AD shifts when planned spending changes at every price level. Expansionary fiscal policy, lower interest rates, stronger confidence, higher wealth or greater foreign income can shift AD right; contractionary changes shift it left.

Check the channel and direction: a tax cut may raise consumption, while an exchange-rate appreciation may reduce exports and shift AD left.

Higher consumer confidence increases consumption at each price level, shifting AD right; a fall in export demand shifts it left.

Do not call every rise in output an AD shift; a movement along AD follows a change in the price level itself.