00:01
So here we're thinking about aggregate demand, aggregate supply.
00:03
So let's draw it.
00:06
Aggregate demand, aggregate supply is a prices and output type story, right? we have a level of potential output, which defines the steady state, right? we have a downward sloping aggregate demand curve representing c plus i plus g plus an x.
00:26
We have an upward sloping aggregate supply curve, which represents firm pricing.
00:34
And we start off here at initial equilibrium, right? so now we are given a story that we want both short -run aggregate demand and aggregate supply are both increasing from year one and two.
00:51
And so first of all, we have to think about what increasing means.
00:56
In this world.
00:58
Increasing is not totally clear.
01:01
For example, does increasing mean going up or does it mean going out? right? you could say that increasing means a shift up.
01:08
Up usually means increasing, but out also means increasing.
01:12
And these are very different.
01:13
If we shift aggregate supply up, it's very different than if we shift aggregate supply out, right? normally when we mean increasing, we mean increases output, right? the variable of most interest is output...