00:01
So here we are talking about aggregate demand, aggregate supply, and we need to identify the curves.
00:06
So the first thing we should look at is the axes, right? we have price level on the vertical, output on the horizontal, and we are given four lines here.
00:15
We are given line one, we are given line two, we are given line three, and i'll do that one in black, three, and we are given line four.
00:33
So here we have to make a bunch of decisions.
00:38
My first argument is that one is long run aggregate supply.
00:44
This represents economic capacity, right? and this economic capacity doesn't depend on prices, right? so for example, the number of factories doesn't depend on prices, right? so long run aggregate supply has to be vertical because it's indicating a specific level of output.
01:12
This three is the immediate short run, and it's the immediate short run because prices take time to change, right? and here there is no change in prices, right? it's just the price level that the economy woke up at.
01:33
So the flat prices are what the economy faces in the immediate short run.
01:41
You wake up one morning, something happens, the prices cannot change immediately, we're stuck at a particular price level...