00:01
So here we've got an aggregate demand, aggregate supply model.
00:03
Let me replicate what i'm seeing here, right? it's a story about real gdp and the price level.
00:09
We've got vertical long run aggregate supply.
00:12
We've gone downward sloping aggregate demand, and we've got upward sloping short run aggregate supply, right? and our question number one is we are doing monetary policy to increase interest rates.
00:30
So we need to map this into the model, right? we need to think about is this affecting the capacity of the economy, right? that's how i usually think of long run aggregate supply, affecting the capacity of the economy to produce.
00:45
Is it affecting the business's pricing model, right? short run aggregate supply is showing how businesses make pricing decisions, or is it affecting aggregate demand, which is c plus i plus g plus nx? when we think of r, what we tend to think of is c and i, right? it affects aggregate demand, right? with higher interest rates, you're going to have less investment, right? investment is going to be more expensive, and you're also going to have less consumption, right? consumers are going to be paying higher interest rates...