00:01
The u .s.
00:02
Enters into a new free trade agreement.
00:04
How does this affect aggregate demand and supply? what are the corresponding effects on unemployment and inflation as a result? and what fiscal and or monetary policies would you recommend to bring the economy back to a long run equilibrium? so the effect of a new free trade agreement on aggregate demand and supply depends on several factors like size of the agreement, the extent to which it opens up new markets, and the impact that has on domestic production and competition.
00:34
In general, a free trade agreement would increase aggregate supply as it would likely result in lower costs of production due to the availability of cheaper inputs and increased competition.
01:20
This could lead to lower prices for consumers increasing consumer spending and in turn increasing aggregate demand.
01:52
But the effect on aggregate demand would also depend on the extent to which the agreement opens up new markets.
02:00
If the agreement results in increased exports, it would increase aggregate demand.
02:21
But if it leads to increased imports, it could decrease aggregate demand as some domestic producers may lose market share.
02:48
The effect on unemployment and inflation would also depend on several factors.
02:53
If the agreement results in increased exports, it would increase...