40 in the aggregate demand aggregate supply model which of...

40. In the aggregate demand - aggregate supply model, which of the following would cause a recession? a) an increase in government purchases c) a decrease in oil prices b) an increase in interest rates d) a decrease in income taxes 41. In the aggregate demand - aggregate supply model, which of the following would cause inflation? a) a decrease in government purchases b) a decrease in oil prices c) technological advances d) an increase in the expected future price level (an increase in inflationary expectations)

Transcript

00:01 Working within the canadian framework, we have five possibilities here and we want to know how this might impact our aggregate demand, aggregate supply curve, more specifically whether or not we may end up with a recession or something that might cause inflation.

00:14 So let's start with a right here.

00:16 And what we're looking at is an increase in the price of homes owned by people.

00:20 So what's going to happen here is the homes that people do own, we're going to see that obviously that increase in the price, which overall is going to lead to a wealth effect for them.

00:29 Now, when the wealth effect occurs, what we know is because we're seeing this increase in people's wealth as a result of the increase in their prices, they're going to end up consuming more.

00:38 So overall, we'll see this increase in consumption as a result of this.

00:42 Now, with this increase in consumption, we'll see an increase in our aggregate demand.

00:46 So aggregate demand is going to shift to the right.

00:49 We're going to end up now at ad2, we'll call it.

00:52 And what you can see is because of this right word shift, we're seeing an overall increase in the price level.

00:58 So we started right here.

00:59 We're now all the way up to here.

01:00 So because our price level has now increased by some amount, we're going to end up experiencing inflation.

01:12 All right.

01:12 Now for part b right here, we're supposing that there is rapid economic growth of a large trading partner.

01:18 So this is telling us that whoever we're trading with now has potentially more economic power to purchase our goods.

01:27 So because of this, we're going to end up seeing this increase in exports.

01:31 Now this overall increase.

01:32 In exports is going to lead to an increase in our net exports because they're now buying more of our goods.

01:38 Well, an increase in net exports leads to an increase in aggregate demand as that's a part of it.

01:44 So again, we're going to see this increase, an overall increase then also in our price level.

01:50 So this one as well is going to result in inflation.

01:59 Now, part c, we're looking at a new technology, which offers profitable business opportunities.

02:05 So profitable business opportunities mean people are probably going to, going to want to invest...

Question

Please give Ace some feedback