Principles of Macroeconomics / Unit 18 MAC 1722 worked example, 60 to 90 seconds
Along or Shift, Across Six Markets
The idea
Decide whether an event moves along a curve or shifts it, in whichever market the question names. The test is always the same: if the axis variable changed, it is a movement along; if anything else changed, the curve moved. What varies between markets is only which variable sits on the axis.
In practice
The price of coffee falls and people buy more: along the demand curve, because price is the axis. Incomes rise and people buy more coffee at every price: the demand curve shifts. The price level falls and more output is demanded: along aggregate demand. Consumer confidence rises: aggregate demand shifts. The interest rate falls and people hold more money: along money demand. Real GDP rises so more money is needed for transactions: money demand shifts. An exchange rate falls and more of the currency is demanded: along. Foreign interest rates rise: the curve shifts.
Where people slip
Notice that the same underlying event can be either, depending on which market you are in. A falling price level is a movement along aggregate demand and a shift of the consumption function. Neither is wrong; they are statements about different diagrams, and the question tells you which diagram you are on.
Your place on the trail
Every lesson rests on earlier ones and opens later ones. Tap any to jump.
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