00:01
Here we're going to look at how the various events affect the aggregate supply and aggregate demand model.
00:07
A, the initial situation is that the economy is initially at the long run aggregate supply equilibrium with cyclical unemployment rate at four percent.
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Net exports will fall.
00:26
This fall in net exports would result in a decrease in aggregate demand, which shifts the curve to the left.
00:49
The equilibrium price level would decrease, and the equilibrium real gdp would also decrease, leading to a contraction in the economy.
01:30
B, our initial situation is that the economy is initially at an inflationary gap where output exceeds the long run potential.
01:40
The federal reserve or the fed lowers the target for the federal funds rate.
01:59
The decrease in the target for the federal funds rate would lead to an increase in the investment and consumption, resulting in an increase in aggregate demand curve, shifting the curve to the right.
02:42
The equilibrium price level would increase, and the equilibrium real gdp would also increase, further widening the inflationary gap.
03:14
C, the initial situation is that the economy is initially over utilizing resources with output exceeding the long run potential.
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The government lowers overall taxes.
03:34
The decrease in overall taxes would lead to an increase in disposable income, leading to an increase in consumption and aggregate demand, shifting the aggregate demand curve to the right.
04:15
The equilibrium price level would increase, and the equilibrium real gdp would also increase, further expanding the output gap.
04:40
D, the initial situation is that the economy is initially at the natural rate of unemployment...