Macro Foundations · intermediate
What moves on the Aggregate Supply – Aggregate Demand diagram
Higher net wealth raises autonomous consumption (the wealth effect), shifting AD right.
Start at equilibriumequilibriumThe point where opposing forces balance, quantity supplied equals quantity demanded, so there's no pressure for price to change..
Asset prices (houses, shares) rise, making households wealthier on paper.
Feeling richer, households spend more out of current income. AD shifts right.
New equilibriumequilibriumThe point where opposing forces balance, quantity supplied equals quantity demanded, so there's no pressure for price to change.: higher output and price level.
Examiners ask this as: wealth effect, housing boom, stock market rally, asset prices rise, house prices surge.
Other scenarios on Aggregate Supply – Aggregate Demand