0:00
Question a.
00:02
So it says that you have two graphs and assume that the economy is initial at equilibrium where 80, and as intersect at graph one and also assume that economy is initially at point c of graph two.
00:17
So explain how fiscal policymaker could move the economy from point c to b in graph two and how this would have done in graph one.
00:28
So for this question, first of all, let's identify c and b.
00:33
Point c in graph 2 has a higher unemployment rate.
00:51
This is 5%.
00:54
And the inflation is slightly lower, which is 6%.
01:08
So the inflation rate is about 6%.
01:15
Then let's look at b.
01:21
Point b has a lower employment rate, which is 3%, but has a high inflation, which is 8%.
01:46
So you want to move from b to b.
01:50
So this means that the government wants to reduce unemployment and accepting a higher inflation.
02:44
So this actually is what move from c to b means.
02:50
So to do this, on graph one, the fiscal policy makers such as congress and president would use expansionary fiscal policy.
03:57
So you can see that on graph one, to achieve the transition from c to b, there must be an expansionary fiscal policy.
04:08
The expansionary fiscal policy would include increasing guise, spending, and also sometimes you could also cut cutting text.
04:39
So this is the policy that involved the expansionary.
04:43
So the action on graph one is going to increase the aggregate demand ad.
04:50
So this would actually cause the ad curve to shift right from 82 to 83.
05:37
So basically you can see if you go back to the the graph 1, you can see that the ad2 is become 83.
05:55
So as a result, the real output increased from q2 to q3.
06:01
So quantity increased, a price level rise from p2 to p3.
06:12
So this all happened on graph number 1.
06:16
So output quantity goes from q2 to q3.
06:28
This is an increase.
06:30
And the price also increased from p2 to p3.
06:39
So from there, you can see this matches with design movement in graph 2 from point c to point b.
06:45
We know that because the output quantity increase, this means that you have lower employment rate.
07:07
And then price goes up means increase inflation.
07:13
So this actually is what happened in graph number one.
07:16
This answer to question number one.
07:19
Let's see b.
07:22
Question a, let's move on to b...
