Principles of Macroeconomics / Unit 8 MAC 0712 worked example, 60 to 90 seconds
Movement Along or a Shift?
The idea
A change in the price level moves you along a curve. A change in anything else shifts the curve. Getting this wrong reverses the answer, so test every event the same way. Ask whether the event would change the quantity at a price level that has not moved. If it would, the curve shifts. If the only thing that changed is the price level itself, nothing shifts and you are travelling along a curve that stayed put. The same test applies to both curves.
In practice
Worked example: a rise in the price level reduces the quantity of output demanded, which is a movement along aggregate demand. A rise in consumer confidence raises spending at every price level, which shifts aggregate demand right. A rise in oil prices raises production costs at every price level, which shifts short-run aggregate supply left. A rise in the price level raising the quantity supplied is a movement along supply.
Where people slip
One shift causes a movement along the other curve, never a shift of it. When demand shifts right, the economy travels up the supply curve; supply did not move. Saying both curves shifted when only one event occurred is the commonest error here.
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