The aggregate demand curve is a downward sloping curve, indicating that when the price level increases, the total spending of an economy decreases. Consumption levels fall because people spend ...

And so, the supply curve does not change, and the original price increase from the demand shock stays. Supply cannot decrease, so there is no countervailing effect from supply, and prices stay low.

The IS curve shifts when external factors influence aggregate demand. An increase in government spending or consumer ...