Question

2.1 Changes in which factors could cause aggregate demand to shift from AD to AD1? What could happen to the unemployment rate? What could happen to the inflation rate?

Answer 1

Answer:

There are many factors that cause aggregate demand to shift from AD to AD1. The unemployment rate will fall and inflation will increase.

Explanation:

A Shift in aggregate demand from AD to AD1 means there has been a  fall in demand. Various factors that cause demand to decrease are:

1. Increase in price of a good itself
2. Increase in the price of complimentary goods-This will lead to a fall in demand. Like ink and pen are complementary goods. if the Price of ink increases then demand for pen will decrease.
3. A Decrease in the price of substitute goods-Like tea and coffee.
4. Expectation regarding future fall in price

So due to the decrease in demand finally the unemployment will increase and with that, the inflation rate will increase making  things dearer.