00:01
So here we're talking about applying the aggregate demand, aggregate supply model, and we've been given the following diagram, right? we are trading off between the price level and real gdp.
00:10
We have an upward sloping aggregate supply curve, and we have three downward sloping aggregate demand curves, ad1, 82, and 83.
00:22
So here, we're told that we're at equilibrium a, which is this point right here, between as and ad3.
00:28
So the key thing is here that we don't know, right? but what looks like, it looks as if we are above potential output.
00:45
And it also looks like inflation is running hot, right? i'm imagining, because, again, simply because of the way this is drawn, i suspect that this equilibrium here at two is potential output and the appropriate price level.
01:02
So what we want to do here is to control with the demand pull inflation, right? we're told that this is demand pull.
01:11
So we are indeed running above potential here.
01:14
So we want to cool off the economy.
01:17
That's the goal.
01:18
We want to cool off.
01:19
So that means we either need to cut g or raise t.
01:24
Those are my two options...