Suppose we observe that the price level and actual real gdp...

Suppose we observe that the price level and actual real GDP have increased. Using the AD/AS model, an explanation for this is Group of answer choices Government passes an infrastructure spending bill. productivity has increased. wages/input prices have increased. businesses invest less.

Transcript

00:01 So here we're talking about the adas model.

00:03 So in each of these cases, what we need to do is draw a graph between output and prices, right? looking something like this.

00:12 We have to have some understanding of what these things are, right? the easiest way to think of aggregate demand is our classic c plus i plus g plus an x.

00:22 And i think of aggregate supply as firm pricing behavior, right? it's the way that firms operate in the economy.

00:32 So in a for example, we have to map this new story.

00:37 So we see less i.

00:40 Less i means less aggregate demand.

00:44 Aggregate demand moves over.

00:46 We go to this new point one from our original point zero.

00:51 And this is what we would call a recessionary gap, right? because output is decreasing, right? if you look at where we started, you can see that output has moved over towards a recession.

01:06 So now i'm just gonna repeat this process, right? for b again, price output, our model, and we have a different story, right? and this story in b is taxes go down and government spending goes up.

01:24 Well, taxes go down is consumption going up.

01:27 So this is more aggregate demand, right? aggregate demand would increase and we would have a new short run economic outcome over here.

01:38 And so this is what we would call an inflationary gap because inflation is rising, right? the gap is putting positive pressure on inflation...

Question

Suppose we observe that the price level and actual real GDP have increased. Using the AD/AS model, an explanation for this is Group of answer choices Government passes an infrastructure spending bill. productivity has increased. wages/input prices have increased. businesses invest less.

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