00:01
So, although the question doesn't say it, question 35 talks about gdp and the price level and that lets me infer that we're talking about a model of aggregate demand, aggregate supply, because the variables determined by such a model are prices and output, aggregate demand and aggregate supply.
00:20
So, we have this.
00:23
Great.
00:24
Now, the key thing is that we have to think about what determines these things.
00:28
Well, aggregate supply is all about firm behavior, right? it tells you how much firms are willing to supply at different prices, whereas aggregate demand is equal to the components of output.
00:40
Now, here we have government spending.
00:43
So, this would be the new school, right? a new school doesn't affect the incentives of firms, it affects how much demand there is for stuff in the economy.
00:52
Now, that means an increase, right, because the government is building a new school, increasing the level of government spending is going to lead to an outward increase in aggregate demand.
01:05
And so, we go in 34 to right there.
01:10
So, for 34, the price level is going to rise and output is going to rise as well.
01:16
We have this short -term effect...