Answer:
There are many factors that cause aggregate demand to shift from AD to AD1. The unemployment rate will fall and inflation will increase.
<u>Explanation:</u>
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:
- Increase in price of a good itself
- 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.
- A Decrease in the price of substitute goods-Like tea and coffee.
- 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.
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