demand side shocks

Question 1

definition

Answer 1

A sudden surprise event that temporarily increases or decreases demand for goods or services. A positive demand shock increases demand, while a negative demand shock decreases demand.

Question 2

effect

Answer 2

A number of demand side shocks can directly affect planned spending in the economy. These include: 1.Shocks affecting household or corporate spending, such as changes in unemployment, savings, confidence, wages, and profits. 2. Shocks associated with changes in liquidity and the availability of consumer and business credit, as in the recent credit crunch. 3.Changes in spending associated with changes in house prices, share and bond prices, called wealth effects. 4.Shocks affecting investment spending, including changes in bankruptcies, business confidence, and profit levels.

Question 3

diagram intro

Answer 3

An increase in AD, such as that caused by an increase in household spending, is shown by a rightward shift in the whole AD curve. The shift in demand will have an effect on the price level and national output, but the effects may not be uniform because aggregate supply (AS) may not be linear.

Question 4

diagram

Answer 4

shift right in ad