00:01
So we have this story of low inflationary expectations.
00:03
And we look at the question, the answers, and the answers have to do with the phillips curve or the aggregate demand.
00:08
So the key thing is, first, it's not aggregate demand.
00:12
Aggregate demand is consumption plus investment plus government spending plus net exports.
00:18
Right.
00:18
If you want to shift aggregate demand, you need to tell me something about consumption is increasing, investment is increasing, government spending is increasing, and net exports are increasing in real terms, right? aggregate demand is a story about the real amount of output demanded.
00:36
So this inflationary shock does not clearly affect the real quantity demanded of consumption, investment, government spending or net exports.
00:43
It's clearly a phillips curve, right? because the phillips curve is a relationship between inflation versus unemployment, right? and we plot a phillips curve between inflation and unemployment.
01:01
And again, i'm using inflation for pie for unemployment.
01:04
Inflation as many economists want to do.
01:07
The idea of the phillips curve is that suppose that unemployment is really low.
01:12
If unemployment is really low, that puts a lot of pressure on firms.
01:15
They really need workers.
01:16
They've got to pay higher wages.
01:18
The tight labor market forces higher labor costs into the economy pushing up inflation...