Draw the graph · Macro · Aggregate demand and aggregate supply
Government sends stimulus checks
Drag a curve sideways, or use its arrows. A curve you do not move is a curve you are saying stays put. Make each shift clear enough that a reader could see it.
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Aggregate demand shifts right. Short-run aggregate supply stays put. Long-run aggregate supply stays put.
The checks raise disposable income, and households spend more at every price level. That raises consumption, a component of aggregate demand, so AD shifts right. Nothing has changed on the supply side. Output rises toward potential.
The price level rises and real GDP rises, closing the recessionary gap.
Common mistake. A common error is to shift SRAS right because 'the economy produces more.' Production rises because spending rose. The policy works through demand.
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Lesson: Fiscal Policy Basics