As we've covered previously, the aggregate-demand aggregate-supply model is a useful tool for helping us understand what's going on in an economy. But it can get

As we've covered previously, the aggregate-demand aggregate-supply model is a useful tool for helping us understand what's going on in an economy. But it can get pretty complicated.

In this video, we're going to take a look at the following real-world scenarios:

1. Suppose our nation's scientists invent new internet tools, raising productivity and making consumers and investors optimistic about future inventions as well.

2. The economy experiences a year of excellent weather for growing crops, and the government cuts back on spending.

3. Suppose there is a war in the Middle East which reduces the supply of oil, and suppose the central bank then reduces the growth rate of the money supply.

All three scenarios include multiple shocks to the economy. Do you think that the fundamental factors of production have been changed? Is inflation affected? What do you think will happen to the LRAS, SRAS, and AD curves in each?

Think through each case carefully and then watch the video to check your intuition!

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