00:01
We have two different parts of this question.
00:04
So the first part i'm going to label as part a.
00:07
The second part i'm going to label as part b.
00:11
So in part a, we have aggregate demand increasing more than potential gdp increases.
00:19
So let us draw out our initial graph.
00:22
Let me draw that line.
00:26
So this is going to be our initial graph.
00:30
We have price level on our run.
00:38
Y -axis and we have real gdp on our x -axis now we have this is going to be our initial lr -a -s -1 that's our initial long -run aggregate supply curve this is going to be our initial aggregate command curve and then this is going to be our short -run aggregate supply curve okay so we know that the long -run aggregate supply curve shifts outward.
01:22
So we are going, and in the first part, aggregate demand increases more than the right -word shift of the long -run aggregate supply curve.
01:33
So where the long -run aggregate supply curves hits the x -axis is the potential gdp.
01:41
So when they say there's an increase in potential gdp, that means that there is a right -word shift of the long run aggregate supply curve.
01:50
So we're going to shift that and we're going to get lras 2.
01:58
Now whatever factors shift out the long run aggregate supply curve are the same factors that shift out the short run aggregate supply curve over here.
02:11
So we are going to shift this curve out by the same amount.
02:17
So we're going to get that curve over there.
02:21
Oops.
02:22
Let's not the same amount.
02:23
We're going to do like that.
02:28
So we have sras 2.
02:33
Okay.
02:34
And now our aggregate demand curve shifted more than that.
02:38
So we're going to do we all the way out there.
02:42
And we're going to do aggregate demand 2.
02:50
So this was our initial price level where aggregate demand hit the short run aggregate supply curve, initial price level.
03:03
And now where we have an increase, where we have a greater increase in the aggregate, in the rightward shift of the aggregate demand, then the rightward shift of the long run aggregate supply and short run aggregate supply curve, we now have an increased price level...