THE ECONOMICS OF MONEY,BANKING, AND FINANCIAL MARKETS 655

CHAPTER 24

Aggregate Demand and Supply Analysis

623

FactorsThat Shift the Aggregate Demand Curve

TA B L E 2 4 - 1
Factor

Change

Money supply, M

c

Shift in the Aggregate
Demand Curve
P

AD1 AD2
Y

Government spending, G

c

P

AD1 AD2

Y
c

Taxes, T

P

AD2 AD1
Y
c

Net exports, NX

P

AD1 AD2
Y

Consumer optimism, C

c

P

AD1 AD2
Y

Business optimism, I

c

P

AD1 AD2
Y
Note: Only increases (c) in the factors are shown. The effect of decreases in the factors would be the opposite of those
indicated in the Shift column. Note that the quantity theory approach views the money supply as an important cause
of shifts in the aggregate demand curve.

where the economy gravitates to in the long run.3 Many economists believe that
the natural rate of unemployment is currently around 6%.

3

A related concept is the nonaccelerating inflation rate of unemployment (NAIRU), the rate of
unemployment at which there is no tendency for inflation to change.