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00:00:00 – 00:11:24
Jay from reviewecon.com addresses the 2023 macroeconomics exam, focusing on the economy of Northland, which grapples with high unemployment and low inflation. He explains key economic concepts like the Phillips curve, tax and spending multipliers, and aggregate demand shifts. By analyzing the impacts of tax changes and government spending on GDP, Jay illustrates how various fiscal policies affect the economy. He also discusses the broader implications of these factors on international trade and currency valuation, particularly between the US and South Africa. Additionally, Jay highlights the importance of consumer confidence and central bank policies, using the AS-AD model to show how shifts in aggregate demand and interest rates affect macroeconomic equilibrium and inflation control. The video concludes with an emphasis on the ongoing review of macroeconomic principles, thanking viewers for their engagement.
00:00:00
In this segment, Jay from reviewecon.com discusses set two of the 2023 macroeconomics exam, providing his best guess answers since the rubrics have not yet been released. He focuses on a specific question involving the economy of Northland, which is in short-run equilibrium with a 7% actual unemployment rate and a 1% actual inflation rate, against a natural unemployment rate of 5%. He explains how to draw the long-run and short-run Phillips curves, labeling the current point. Jay concludes that the expected inflation rate is greater than 1% based on the positioning of the curves. He proceeds to part C of the question, dealing with the marginal propensity to consume and the effect of a tax decrease on government income.
00:03:00
In this part of the video, the presenter calculates the maximum change in aggregate demand, explaining that real GDP changes equate to the aggregate demand shift. The tax multiplier is calculated as -9, and a tax decrease results in a $180 billion increase in GDP. Next, the effect of a $20 billion increase in government spending is calculated using a spending multiplier of 10, resulting in a $200 billion increase in aggregate demand.
The video continues with graphing a possible short-run equilibrium on the Phillips curve and discussing the impact of increased unemployment compensation on short-run aggregate demand. Increased compensation is linked to higher consumer spending.
The segment also covers the implications on the short-run aggregate supply curve if the government takes no action, explaining it would shift right due to decreased wages or input prices. Lastly, the short-run Phillips curve’s response is discussed, indicating it would shift to the left as a reflection of the increased supply curve.
00:06:00
In this segment of the video, the speaker explains several economic concepts and scenarios. Initially, they discuss the anticipated decrease in the actual unemployment rate due to wages falling and more workers being hired, which is linked to the short-run aggregate supply curve shifting to the right. They then address a question about the impact of increased real income in the United States on net exports, explaining that net exports will decrease because higher income leads to more imports from South Africa.
Next, the speaker mentions that the United States’ capital and financial account will increase or become a surplus due to the decrease in the current account. The unemployment rate in South Africa is expected to decrease in the short run due to increased exports stimulating aggregate demand. There is also a mention of currency appreciation, with an increase in demand for the South African Rand causing it to appreciate against the US Dollar. Finally, the video moves on to another scenario involving a country named Zen, which is in long-run equilibrium.
00:09:00
In this part of the video, the speaker draws a correctly labeled graph of the AS-AD model, marking the current level of output, price level, and the full employment level of output, showing they are at long-run equilibrium. Then, the speaker discusses the effect of an increase in consumer confidence, which shifts the aggregate demand curve to the right, increasing the price level and output. Next, the speaker assumes the banking system has ample reserves, and the central bank aims to maintain a stable price level at the initial equilibrium, suggesting an increase in interest on reserves as a monetary policy action to combat inflation. The speaker explains that this action will decrease real output because the increased interest on reserves will raise the policy rate, reducing gross investment and interest rate-sensitive spending, thereby decreasing aggregate demand. Finally, the speaker provides some concluding remarks about the macroeconomics exam questions, encouraging viewers and thanking them for their support.