00:01
So here we're talking about the aggregate demand curve, and we know a whole bunch of things, right? we know that a plus 1 % wealth, right, leads to plus 5 billion in consumption, right? that's the first fact.
00:19
We also know there's an interest rate effect, right? investment responds to the interest rate, right? and so if you drop the interest rate, right, minus 1 % real rate, leads to $20 billion in investment, right? investment here is very sensitive to the real interest rate.
00:46
So we also know that there's a multiplier of three.
00:53
And the multiplier is telling you the change in output from the change.
00:58
Change in spending, right? and this is three.
01:04
So this goes to plus 15 billion y, and this leads to plus 60 billion y, right? i'm multiplying them by three because when the households spend more or the firms invest more, they increase national income, put other people to work, put paychecks in the pockets of others who then go out and spend more money.
01:25
So we've got two effects, right? the wealth effect creates $5 billion of consumption, which results in $15 billion of output, and the real rate increases investment by 20, which increases total output by 60.
01:39
That's what the multiplier here is telling us.
01:42
So for a, we're told three things.
01:44
So we have minus 4 % wealth...
