Week 9 Business Cycle Analysis PDF

All right, so let\'s first of all start off by looking at what we mean by business cycle. So that is where economic activity 2:49 - fluctuates. It doesn\'t stay constant all the time, even though we feel like it\'s going on a constant. But we know economic activity can expand. 2:59 -...

All right, so let\'s first of all start off by looking at what we mean by business cycle. So that is where economic activity 2:49 - fluctuates. It doesn\'t stay constant all the time, even though we feel like it\'s going on a constant. But we know economic activity can expand. 2:59 - Okay, and then it goes through a contraction 3:10 - Okay, so this is where we say it can actually fluctuate. So you can see when the economic activity, so on this axis is showing economic activity and over time you can see economic activity could be expanding. 3:13 - And then things could be falling and that\'s where we call it a contraction. 3:30 - Okay, then it can expand again okay so it just basically goes in a cycle. All right. So there are basically 3:33 - four faces. 3:43 - So the business cycle or economic activity, so your business cycle 3:46 - There are basically four faces to that. 3:53 - So we are going to have your peak. 3:59 - Followed by a contraction. 4:02 - Followed by trough. 4:06 - And then expansion. 4:08 - Okay, so this is the normal. 4:15 - So once we hit a peak, things could fall and then it could expand and then it could reach its peak again okay and it will hit the 12th. So let\'s look at the expansion phase. So expansion phase is basically when the economic activity is increasing. So during the expansion phase 4:19 - We say that normally 4:40 - production, employment. 4:42 - And income will all be increasing above the trend growth. 4:44 - Okay, so during an expansion, we basically say people are spending more and people are spending more. 4:49 - then firms will have to produce more goods and services. 4:56 - When firms have to produce more. 4:59 - they will need to employ more workers. And when they employ more workers. 5:02 - That means more people are working 5:07 - there will be more income in the economy. 5:09 - Okay, so then the economic activity of business cycle will reach its peak. 5:14 - all right so during expansion 5:20 - When things are picking up. 5:22 - That\'s where we say production will increase when firms are to produce more 5:24 - they will have to employ more workers. When they employ more workers, more people are working, there will be more income. 5:29 - Right, during a contraction, contraction is basically 5:36 - economic activity as you can see in the diagram here economic activity is basically going downwards. Sometimes this is known as a downturn. 5:41 - So what happens during a contraction? You would notice that 5:55 - Firms are probably having unsold 5:59 - inventories or unsold stock, so they\'re produced goods, but they did not manage to sell everything 6:05 - So there\'s basically a buildup of inventories. So if there\'s a buildup of inventories because they didn\'t manage to sell everything, what happens then? 6:12 - they\'re not going to have to produce so much. 6:21 - When they don\'t have to produce so much 6:24 - They don\'t have to employ so many workers. 6:26 - And as a result of that, with less people working in the economy. 6:30 - there\'ll be less income. 6:35 - Okay, so you can see production 6:37 - employment and income will be falling. So you can see how production will link to employment and how employment will affect the total income in the economy. 6:40 - Now, we can also talk about the period of a recession. So when is a recession? 6:54 - Recession is basically when we have not only production, employment and income are decreasing, but basically there is negative growth. 7:01 - okay so instead of economic growing, remember last week we were calculating, we\'re showing you how to calculate the real GDP. 7:14 - okay and we say if it is increasing, the economy will be increasing from one year to another or from one period to another period however 7:22 - things could go bad okay for example during covid okay that\'s where a lot of countries had negative growth when your real GDP actually was a negative value. Once we have got a contraction, economic in a trough, that would be when economic activity is at its lowest. 7:30 - Now, so recession, as we say, basically a decline in economic activity 7:54 - Okay, and the technical definition of a recession 8:00 - is basically when we have two successive quarters of negative economic growth. 8:05 - Okay, so basically in Australia. 8:13 - We had a recession. 8:17 - Can anyone tell me what caused this recession? 8:20 - Can you remember what happened back in 2020? 8:24 - everyone here would have known. Not only in Australia, but 8:29 - like a throughout the 8:35 - Well, most countries during that period had a recession all right so you can see basically during that time 8:37 - So Australia already expected a recession when we went into lockdown in March. So Australia went into a lockdown in March of 2020. But before that, in December. 8:45 - For those that were in Australia, we had a very, very bad bushfire in December. 8:59 - Okay. And obviously at that time, things were not looking very good in Australia. We were already having a negative growth. 9:06 - Then when the government announced in March that we were all going into a lockdown. 9:13 - We already knew that Australia was definitely heading towards a recession. 9:18 - All right, because we had the first three quarters, we were already having a negative growth. And then because of this lockdown, we\'re definitely going to have another quarter of negative growth. So that\'s where Australia had a recession. 9:24 - Now, before this, Australia did not have a recession for about 30 years. 9:40 - Okay, so Australia was actually recession free for about 30 years. 9:47 - right so 9:52 - what happens at the end of an expansion 9:55 - So remember during an expansion we say 9:59 - things will be picking up. 10:03 - Okay, so we say firms will be producing more, they will be employing more workers, there will be more income. So what exactly will happen at the end of an expansion? 10:06 - We say interest rates will generally rise okay now the reason for this is basically with 10:20 - Remember we said during an expansion 10:30 - It would have led to an increase in income. 10:34 - Which then would have caused an increase in spending 10:40 - And therefore, there would be an increase 10:46 - in inflation. 10:50 - So to control inflation, this is where something we\'re going to look at next week to control inflation. 10:53 - This is where the Reserve Bank of Australia will increase. 11:01 - interest rates okay so don\'t worry too much about this at the moment about reserve bank increasing interest rates okay but this is what exactly will happen because at the end of expansion 11:07 - there will be a lot of spending. 11:20 - And that means inflation will be high. So in order to control inflation, Reserve Bank will have to increase interest rates. 11:22 - No, at the end of expansion, why will wages be increasing? 11:31 - So this will be due to 11:37 - we are now probably going to have 11:39 - labor shortages. 11:43 - Okay, so you could have labor shortages and also because of inflation 11:45 - Workers will then ask for higher wages. 11:52 - All right, so that could then cause why 11:56 - wages will actually be increasing as well. 11:59 - Now, what happens to profits of firms then? 12:03 - they will actually fall because of 12:07 - higher okay interest rates so if they have borrowed money 12:12 - okay to buy machinery, to build factories. Now the repayment is going to be higher. 12:18 - Okay. And also. 12:24 - higher so higher interest rates and higher wages. 12:26 - that they have to pay workers. So all this with the higher interest rates, higher wages, this will be a cost of reduction. 12:31 - Okay, so in this case here, this becomes higher cost of production for firms and that is where the profits will actually begin to fall. 12:43 - Now, what about contraction often begins? When? How do we know contraction is happening? 12:55 - happening. Remember, once we reach with the expansion we reach a peak 13:03 - then things starts to fall. 13:08 - So how do we know that contraction has begin? Because mainly there will now be a cut in spending 13:11 - by firms on capital goods. 13:19 - Right? Because remember, interest rates were very high. So interest rates have gone up. 13:22 - When interest rates goes up, they will be less willing. 13:27 - to borrow money, to buy machinery and build factories. So there will be less spending by firms on capital goods. So your capital goods would be your machinery, factories. 13:32 - okay and also there will be less spending by households on new houses 13:42 - okay and consumer durables now so households were cut down on their spending on new houses because interest rates have gone higher. So it\'s more expensive to borrow money. 13:48 - Okay, to buy a new house and also obviously 14:00 - with things not looking very good, consumers will also cut down on their durables. 14:06 - Okay, so you would see when economic activity starts to slow down okay this is where people will actually um 14:12 - the for sale sign or for houses will tend to be up there for a while where it is very difficult 14:20 - Okay, to sell the house 14:30 - in that situation. 14:33 - Right, during an economic expansion, as we say, inflation will rise because of the fact, remember I said there is more income 14:35 - when there is more income, there will be more spending. So with more spending, inflation will tend to increase. 14:44 - Okay, and during a contraction 14:54 - We say, because of the fact that 14:56 - less people are spending when less people are spending, then obviously um 14:59 - prizes will not go up as much. 15:05 - that for inflation will normally be lower okay so this is where there are some exceptions 15:07 - that when there is expansion, it does not always mean inflation rate will rise. 15:16 - okay if the expansion is from the productivity side of things that we are able to produce more. 15:23 - prizes could actually fall. 15:31 - okay similarly during a contraction, it does not always mean that prices will fall. 15:34 - Okay, if it is a recession caused by supply shock 15:39 - then price level could go up so this is something we can use to aggregate demand 15:43 - aggregate supply model to show this okay so we\'ll talk that about that um 15:49 - Fraction remember during contraction we say so if you remember we say during contraction firms are producing less 16:02 - when firms are producing less day will then employ less worked sure during a contraction un employment will tend 16:12 - to increase because firms to not have to produce so much when firms don t have to produce so much then they are not 16:22 - gonna have to employee so many works now however we say even eat like it recession is over so let s say for example 16:30 - with our business cycle when economic activities starts to pick up like cats even if recession is over and 16:43 - 你跟他們activity starts to pick up on employment is not going to immediately for okay why unemployment is not going to 16:53 - in me thirty four it is basically. 17:02 - We say remember last week。 We talk about this call race where gas對於so to be considered as unemployee 17:05 - remember last week we talked about the definition to be considered unemployee the person is currently not 17:19 - working, but must be actively tooking for job like case on now the discourage because previously was counted 17:25 - as was not included in unemployment okay and they are not in the labor force but now when things start to pick 17:34 - up a lot more will start to join the labor force it will start to look for a job okay so discourage workers we 17:42 - enter the workforce at the same time however firms are still operating below capacity so firms are not going 17:49 - to immediately employ back all the workers all firms are not going to immediately jump in to employee more workers just because 17:58 - o starting to get out of raise session so they need to know that how strong the economy is before firms will jump 18:11 - in to actually start employee more workers accassion at the benking all at the early state of expension not 18:19 - being not very chew words ah exactly how strong this expension is going to be firm so whole back a little bit 18:28 - okay if they know that yes things are really looking good that is where then they will increase the employment so this is where we say 18:35 - at the early stage okay more people lo enjoy的workforce好EE window的recession is over okay it s at the early 18:43 - stage of whare session is over alright now we are going to use okay the ad is model shore okay what with just say just 19:01 - not about with the economic expending why we can see production is going to grow why we can see unemployment is going to be 19:15 - lower, how do we show this in an economic model so this is where we gonna talk about the agricated month agricate 19:23 - supply model okay so this is what we call the a t a s model so for又aggregate the month let s start of with your 19:33 - aggregate to month. 19:45 - So which we can label as eight. 19:53 - So who do more goods in the economic. 19:56 - Remember lost week we talk about g dip who do we perduce good for we produce because we have so consumption 20:02 - we produce good for business investment remember oy it s a investment by firms and businesses and we talk about 20:11 - investing in machinery factories toos equipment inventries and somewhere bind還沒有house okay so 20:20 - that is sort of like so this is where for investment university is not putting money in the bank this is not where you 20:31 - buy a gate the stock market or share mah can we are basically talking about firms investing in capital goods 20:41 - as well as someone pink a new house then we talk about we produce good for government per chases remember government needs to be 20:50 - building roads and and real way lines and but in calls for the government offices by computers and so on for 20:59 - the government offices and then we have got the net exports so this other four seconds that we produce goods for 21:06 - which means that these are also the same for sectis that the morning the girls dadd this why we produce in good for them 21:16 - okay. So you would notice that. 21:27 - 有GDP equation of your c r g and x four sectors一般of those that the month would send services right so we are produced saying 21:30 - good for the same group of people now how did they agree gate the month curve look like it is just like any 21:44 - normal the montal so it will. 21:56 - Be down word slopping. 21:58 - Okay at and in this case here we are talking about total demond of all goods and services so we are no longer talking 22:06 - about just one market we are not just talking about the apples market or the car market or tomorrow s market we are 22:16 - talking about the two thousand demote of all goods and services that are mains old oh markets so in our x exis 22:23 - instead of just coo one tity of a particular good we are going to talk about the executive is just real g t what 22:33 - about on the wine excess instead of just price of one good we are going to refer this as price level so the accident month 22:46 - shows the relationship between real g d p的price level okay所以is a down which slopping the monica。 23:00 - Making up off four seconds my gay and i chose the relationship between the price level and the cool one did it 23:15 - off your real j. Dipping. 23:26 - Not eh this exactly the same as the demon can of the normal demon car remember with the normal demond curve. 23:29 - We say that s a normal demondar dhat is the price of the product that s the quantity now you remember we say 23:38 - if the reason increase or decreasing the price of the product what happens so if that s an increase we are just 23:48 - moving up the curve and one tity will decrase bor if there is a decrease in price. 23:58 - Then we are moving down the curve. 24:09 - And有quantity，我linch the same thing啊本切if price level cost up。 24:12 - We are going to go ah the curve dan the quantity of real g d p four and if the price level folls. 24:24 - Which is your variable on your why exist price level falls we just going to move down to curve and for the 24:38 - real give pay will increase. 24:48 - 所以would just be a movement along the curve now the cush can also shift so we say a great demon cup like your normal demon curve can 24:49 - also shift to the right. 25:08 - Or it can also shift to the left. 25:12 - So what what cause these to shape so forth agricated month of to shift or the to the left or to the right this must 25:18 - have been because the components one or more of this components have changed as a result of one or more of this 25:29 - components changing then要AD跟world increase o d cris and then it will shave the cup so what are some fact that 25:40 - that will affice so what as some factors department so let s have no bucause that. 25:52 - Well the fact since you are also spending. 26:11 - So what are some fact that they were fact how much how much house will be spending sure here the first one is 26:24 - basically this possible and comp that is basically income. 26:31 - 哦，這okay so if i pay less texas or where mo money for spending so for example if currently ah an one thousand dollars 26:41 - And i have to pay one hundred dollars of tax. 26:59 - That means at the end of today. 27:06 - 啊， will have nine hundred dollars for spending now what happens if the government increases the text so if the government 27:09 - increases the text to two hundred. 27:19 - Now. I would only have eight hundred dollars for spending okay so we say if we have got more money we can spend 27:22 - more if god less money and obviously we will spend less the next one is your wealth that is basically looking at 27:32 - the accumulated wealth you have okay for example property value property prices has gone up quite a bit in the last 27:43 - couple of years so those people that own a few houses a few properties david will feel reach alright so if they feel 27:53 - rich then they will tend to spend more okay or let s say i invest in the stock market and the stock market crash 28:02 - the share market crash i will feel quite poor if i feel poor then our cut down my spending okay now i could do so 28:10 - basically expected future income correct so what are my expecting um say vine expect i am going to get to pay rice 28:20 - then yes going to be happier. 28:31 - I am going to be willing to spend not but every expected um going to lose my job they get our pay cuts then 28:34 - obviously i am going to cut down spending nicology affected by interest race okay so interest rate 28:41 - basically effects. 28:51 - Borrowings and six i can so remember if let s say i want to buy a call for example i might have to borrow money from the back 28:56 - if interest rates are high then it makes it more expensive for me to borrow money so our word rather blot by the car 29:09 - okay now also for savings if you put the money in the but you might earn some interest rate so if interest is a high 29:19 - more people who want to put the money in the pand rather than save it在。 29:27 - Okay so how confident are you about what s happening in the economy are you confident that you are not going to lose a 29:39 - job, okay do you think that things are looking really really bad okay so if you are confident that things are good 29:47 - yes you are no problem spending, but if you are not reconfident about what s happening in the economy that you could 29:54 - like live lose a job. That s where you would want to cut down spending so disas some factors that will affect your consumptrate 30:03 - now玩的寶bucause that could affect indressment by firms and businesses。 30:12 - Back this day will be fact. 30:26 - Ah which is。嗯吧。死門by firms and businesses。 30:33 - Okay so investment by thrms and businesses remember here firms who need to buy machinery and toos and fact tries 30:45 - okay so what would affect where the firms will actually be boy more machine right be building new father right so 30:58 - first of four what is the expected. 31:07 - Future routed if they expect you going to get you tomorrow no profit then yes they will want to produce more inself 31:11 - so that means they will need to buy more more machinery or build more factor okay it also facts it s affectively 31:20 - catchlog the mountain interests i guess i interested once again because remember from have to borrow money 31:28 - to buy big equipment to build fact trades okay and i could also be affected by text rets the same as um好的 31:39 - con did, so this of some factors. 31:55 - That world affect out. To get where the firms are going to be more will be willing to buy more mationary so 32:03 - built five tries okay based on some of this factors here now then what about factors that will shift gee. 32:13 - 所以here basically factors that worship government purchases or government spending。 32:27 - Now in this case here we are going to look at this in mode detail okay um next week when we talk about this good for the timing worry too much 32:51 - a okay because we are going to talk about that to when we talk about fiscal policy next week then sacters that will affect you and x 33:06 - Your net exports okay whether australia can sell more or less to other countries. 33:18 - 所以and x which is your net exports。 33:29 - Okay remember this is a export. 33:37 - Minus in. 33:39 - So what some factors that will affect whether it s australia is going to be able to sell more on less of the 33:46 - countries thank you um harry. 33:54 - Okay let me see harry has connected this up for me so thank you herring so it will be depending on exchange rates 34:04 - like so remember if anyone wants to buy things from australia they will need to pay as in australian dollar they 34:15 - can pay as in their car countries currency okay so they would need to convert their currency to australian dollar 34:21 - 所以fustrialing dollars very high so a lot of you some of you here i would say some of you are international 34:28 - students so for you to be studying here you will need your parents will need to convert your currency from your country 34:34 - jou astralia。 If we astralia is very high人權australia is not going to be able to sell a lot of things to other countries 34:41 - okay so every eight four street dollar is now then it s easier for street to sell to other countries then we can 34:56 - talk about australia and economic growth relative去economic cross of our the countries okay basically 35:04 - if other country is growing if um they will then be spending a lot which will also include bind things from australia 35:12 - okay however if let s say our trading partners the country is not doing very well okay economic situation is 35:23 - very bad there that means people there are not spending firms or not producing then they are not going to be puying 35:31 - things from australia okay. 35:38 - So this would be um your growth right in comparison to other countries yeah we can know是talk about the 35:41 - price level. 35:49 - In australia incomparison two price level in other contracts. 35:53 - Okay sure for example let s say currently let s say australia and new zealand are selling ipokes the apples. 36:04 - Okay so let s say australia and new zealand are both selling upots to the rest of the cat work. 36:17 - Alright so yeah australia and new zealand currently selling apples to the rest of the world now as twenty 36:26 - dollar not much difference in exchange rate so let s say boss of them are currently selling apples for two dollars okay lor 36:33 - Okay what happens if australia decides to actually increase surprise of apples to three dollars a killer in state of two dollars 36:43 - it decides that it has to be a three dollars that means in this case proud is in our relationship that means in the food 36:52 - then more people bepind from new zealand australia obviously will have affected its export it will not be able 37:01 - to sell okay as much to other countries so that s where we talk about your price level in australia being 37:11 - comparison to price level in other countries so it prices is australia is cheaper then we are able to sell more to other countries but 37:18 - it prices you know astralia is more expensive then obviously they will buy from the cheaper countries all 37:27 - right so this is some of the flactors dive month ten cross the a d gap or the shift to the right achieve to the lab 37:34 - okay so here this is basically listed there and this gives you some examples okay so for example with higher 37:45 - interest rates you can basically how you interested so if this is an increase in interest rates. 37:56 - So okay and we say you see and your o i would both actually folk. 38:05 - So that four the adker will decrease and shave to the le if government purchases increases so remember有AD 38:13 - so always remember your a d equation so i agree it the month is see i g n有nx so if generally g now increases if government 38:23 - specials increases then agricated month will increase and that what she does the right now wappens af 38:39 - income tax and company texas have gone up what happens now remember they will have less money for spending 38:48 - 這client bossal decrease a d。 38:59 - World then decrease i guess there are a d whole ten year to the left aive houses expert hall也future income 39:03 - then see who basically increased a d will then increase okay跟new york then all i would increase because firms will 39:13 - be willing to invest in more machinery build factories to be able to produce more if there is an encreasing 39:28 - growth rate of domastic g d p so that means australia economy is growing so what happens we are going to tend 39:36 - to buy more goods okay. So your imports will increase so therefore your net exports will actually for so that 39:45 - 我shave有adecurve to the left exchange rate in australia is gone hair then once again this will make our 39:56 - exports to for and your imports worries所以n ex will then。 40:05 - Okay so this are some factors that will basically shave to either curve alright does anyone have any 40:16 - questions so far it s everyone good so far. 40:26 - Anyone have any questions are you a good remember account services so it would be good if you show me some indication 40:35 - order yes no comes up. 40:44 - Do the right。 So i see any question okay less這個quick five minute breaks will be bad in five minutes then we will look at 40:50 - the aggregate supply sort of things then we are going to combine all um the curs together and work out what 41:00 - happens to one employment price level okay real g l p akay went one of the factors change. 41:08 - Starting. 41:20 - Right so the rest of you have quick five minute breaks would be back in five minutes. 41:25 - 奧運會。 45:52 - 艾未未。 46:04 - Thank you ah yes yes sense。鼓掌。 46:11 - Great all right that souff look okay so lets now move to okay so we have the look at igricate more so agricated month 46:24 - was basically the same as a normal temance now we want to move to agricate supply risk ago get supply you know macro 46:34 - economic model they are actually too often the first one is what we call you know run agriculty which is lr as 46:48 - 誒we have next one cool your short right。 47:10 - Again supply their sister s so we are got one extracure okay in our agricate split so the long run against apply 47:23 - car here is basically werticle at potential哦哦。 47:36 - Employment getting it. 47:44 - Okay, in now the worst year. It basically should using all the resources we have more is the maximum we can basically 47:50 - produce okay let me just start. 48:04 - I can just remove this for now. 48:09 - So the long run ang like okay so remember this is a price level. 48:11 - That s is your real geleping. 48:22 - And basically. We say this is how you long run agree supply curve it shows you what is the maximum real g d p we can 48:27 - protuce given the resources and technology we have okay so given the amount of labor and copital goods and your 48:40 - land again the cachnology that is the max對嗎？ 48:52 - I guess if we employment or potential gdp which we can label s why pet in all the words here有long run against applicate 48:57 - okay is not affected by rice level it doesn t matter how hi的price level go that is the maximum we can produce 49:10 - okay it doesn t mean the the higher the price level the more we can produce we can given whatever resources we have 49:24 - that is the maximum. Now. You remember. 49:30 - In topic number one production possibility from the production possibility car remember points on the 49:35 - curve shows this the maximum that can produce this is exactly what long run and great supply care a show it okay 49:43 - maximum um goods can be produced given amount of resources and technology那you remember a production 49:53 - possibility from death can chip. 50:03 - Okay so in this case year。 Remember what course的situation you figure more resources if you got better technology 50:08 - dan the current shift to the right the same thing happens with the long run agricate supply. 50:18 - Okay so that means a long run agree supply curve can she each if basically we have got more resources. 50:31 - Oh just label happy to gotch ops. 50:48 - Okay or was your improvement. 50:58 - In tack no laughing which dan effects productiviting. 51:03 - I guess what the same factors that basically shift the long run agree supply at the production possibility 51:12 - fro it will also shave the long run against a plat okay so you long running supply is a very important curve in 51:20 - macrine the a d a s model because we take careful we do not know where the full employment is watch the maximum that can be produced 51:29 - now how is this different. 51:40 - To the short run agricate supply gift that you should run and get supplied off this is just like our normal supply 51:44 - cup which is about what selling okay sure basically this is just like our normal supplicate. 51:57 - Eight is going to be opportunity with your price level so it s just like all normal supply的accepted for the 52:17 - exis is showing price level and you real j the big所以thes support slopping here and we say it can shift as well 52:25 - Do you too so what are some of the fact that. 52:39 - 說think about all normal supply cut what factors choose she for supply curve it could be anything that 52:43 - affects a cost of role thing four example. 52:51 - 有。 52:59 - Okay so for it price all the price will affect our production. 53:03 - Okay or。因爲wigges anything that affects cause a production okay it real then shift the club so it s exactly the 53:09 - same as or normal supplicate and also anything that the facts remember amount of resources. 53:22 - 你去got more resources were able to practice small if got more labor i can put this wood if a good more capital goods i 53:32 - can produce more tan also take you know okay so if you notice this two fact this here oh the same factors that 53:38 - affects you long run agreed supplied okay so we just should run and get supply not only suffected by your course production 53:55 - but those are more nobody so是生technology which is exactly的sem resource that the facts to along run agricate supply 54:05 - okay right so that is you will should run again supply so once again the short run agree supply can basically 54:14 - shift to the left if course of production goes up then supply will be less he can also shift to the right okay if course a product 54:24 - chinese low what if you for more resources with corporate technology so this is what the long run 54:33 - agriculture is showing it is vertical okay it s not affected like it by the price level it can shift by mountain resources 54:39 - okay where they slable capital goods or technology and then we have short run agree supply curve which we 54:53 - say is outward sight okay. 55:02 - So here can see for example. 55:06 - 一年， then we should be able to pretty small if we have got improvement in technology or increasing 55:09 - productivity. We should be able to produce small if we expert how you future price level why will this phone that 55:19 - because when we expect how your price level what our work is going to do work cares will us for higher wages okay when 55:29 - workers are so higher wages cost oper production girls ah i guess a basically if we expect that prices are going to 55:39 - go up in order to be able to buy the same amount of goods as previously going to go in as for hire wages okay so 55:48 - we worked some firms i m increased wages production girls ah okay same with this one okay with under 55:56 - estimated the price level previously okay so instead of um we expected inflation was only two percent but i did actually went up 56:05 - to five percent so now i am going to read a just and us for higher wages again okay any increasing natural 56:14 - resource for example currently with um well going around okay all price will go up and all the price goes up course so production goes up then 56:24 - less will be what gives alright so this as some of the factors that will affect or shave the sr ascape it s 56:36 - everyone good that s anyone have any question. 56:44 - Are you a good anyone have any question before we combine all the three calls together. 56:52 - 有個。 57:00 - Like case not entire stage as in at not you don t have any question and distage or believe that so you say herry 57:10 - 奧妙，這次誰？ 57:19 - Things are going to get interesting thank you for conference i mean so things是good get interesting here 57:25 - because now ah we are going to look at what we call nacro i cannot make equally it s just like her normal 57:33 - demonsply we going to get an equil labor point sur combining ops有long run a d s r a s所以對啊，說明this is along run 57:46 - agricate supply. 58:11 - This point yeah so to make it easier i m going to label this as point a. 58:17 - That is basically so i remember this is a price level this is a quite library price level this is at full employment 58:24 - remember where a long run agree supply caref is and this is she real j tepic. 58:35 - 是不是equilable will always be at。 58:44 - Macro economic equipment. 58:53 - Will be at the point. 59:01 - Macraconomic equipment is always where. 59:09 - The agricated month interests s r ah. 59:15 - As long as i get them on at s r a s car intercide it is an a colorado point now in this kids when again the month sex 59:22 - 說on the long run agreed supply and all the words all the three cars are interesting this is what we call your 59:40 - long run equilable alright now the words不andloyment they create okay so as long as eighty in the sex 59:55 - as it is any culibrate when it the specific claim to sex on the long run agreed supply curve as what we are showing for 1:00:10 - example wii a that is what we call the long run accountable okay and that is what they cannot make will always want to be 1:00:21 - at it once to be at。不employment along running collabor not sometimes你的adea so let me just quickly make a 1:00:35 - slide changing this did grab sometimes對AD car instead of interesting at that point let s say they ad 1:00:47 - inter sex s r a s貼。 1:00:58 - So that is still your ad. 1:01:05 - I agree the month still into secting a sorry as but that is not on the long run agriculture like up so we call this 1:01:09 - ah short run account okay so point eh where all three guys are interecting that is along running collaboral 1:01:17 - point be or even we might have an a decarve here. 1:01:28 - Point c point b n c. Is also an accountable however this is just short run eight color room. 1:01:35 - Point b and see is what we call short run account economy is not at full employment okay we want the economy to 1:01:50 - always be at full employment alright let s have a logal and assuming. 1:02:06 - They cannot me is currently at more eight okay so cannot me currently at point eh at full employment. 1:02:15 - At your long run equipment. 1:02:29 - Oh sure employment. 1:02:34 - 呃。 1:02:40 - Okay now. What happens if no. 1:02:52 - There is a decrease in agricate marts of fur example there is a d crize okay in house who spending. 1:02:56 - I can remember. If there is a decrease in how so spending then see well for so what up instead i could get the monker 1:03:11 - 我basically shift from a dy one it will now shift to a d。 1:03:22 - Okay. So if there is a four in lets say consumer spending then the ancricate themoncure of will shave to the left 1:03:39 - from eighty one就ad就so what happens now they can know me will not be where is the equily broondau it will 1:03:47 - now be。我。 1:04:04 - So this is where they cannot meet movie so with a decrease. 1:04:09 - In a d the class ships. 1:04:15 - To的left， you can not me will not be at money and remember point be is your short run誒so what happens at point 1:04:24 - big not remember this is your proce level so let s say initially this is a price level equipment price level. 1:04:42 - Okay and this is your不employment or protent show g d pay what happens as result of the a d shifting to the laft 1:04:54 - We will find a new equil around at point at point b from the diagram you can quite clearly see it money what 1:05:08 - happens to our price level. 1:05:22 - Price level will now bll like say fost joe price level one. 1:05:27 - Like. I said that s called let s do let the hundred. 1:05:38 - So initially is the colleague price level no price level basically for what happens to the real j d pick so you 1:05:45 - can see basically. 1:05:56 - The real j d p. Now instead of at y p. 1:06:00 - It will now be ops. I think copy o ah. 1:06:07 - I want to need to copy this. 1:06:14 - 你的so at point be what happens price level force tur price level one what happens to your real g d p real g d p which 1:06:22 - is so why i? 1:06:40 - Okay so basically is lower. 1:06:43 - 對，有不employment所有GD。 P in all the worst year real g d p has also我們alright now because your real g d p has is lower now 1:06:48 - okay that means they can know me is no producing less when you couldnomie protuces less on and gloyment will 1:07:04 - right they don t need to employee so many workets okay so you can see from the diagram he gives us the important 1:07:18 - information that thousands what appensive economy false eighty shift price level quite f and basically then 1:07:28 - the real g l p i我for。 1:07:38 - Okay and because real g d p as fallen then on employment for rights so that is in your. 1:07:44 - Okay not economie there is not like. 1:07:58 - To be out of foom place it will always want to try and adjust by to full them plum and so in this case we will then want 1:08:02 - to have a look hello well that it cannot me. 1:08:12 - Adjust by就full implement so how can that is coming me a just bits off but to get to phone implement就有full employment 1:08:26 - No in this case for how does it get back to your long run equipment. 1:08:42 - Okay so at point b. 1:08:54 - With high year unemployment right. 1:08:58 - What happens state because a lot of people have lost their job and in order to get the job day will be willing 1:09:02 - to accept liwer wages or for example if eye still have got my job and i know a lot of people have lost the job okay 1:09:14 - okay i don t want to use my job and we link accept lower wages okay so weith high unemployment rate workets 1:09:21 - will be willing. To accept lower wages chicken those that are unemployed they are obviously looking for a 1:09:30 - job and willing to take a job at allower which okay at those that currently working a while using t so 1:09:41 - we worked some willing to accept lower wages remember we said earlier on wages will affer your short run direct split 1:09:51 - because it will be affecting the cost oh production they get so in this case yeah when werkers accepting lower 1:10:04 - wages course after that well for a couple of production is lower terms will be able to supply more so asar as 1:10:14 - well increase and shift to the right so that means now. 1:10:28 - SAA scarf。我basic clay now shift shaved shaft okay to let s say that s call this s r e as true。 1:10:38 - What happens now where is the economy now. 1:10:58 - So that can not me will now cannot. 1:11:05 - 誒point sit okay所以economy anditionally was a point eh then it most point be with because of the foll in agricator man 1:11:09 - now it basically moved to point six so at point see what is happening you can say at points in price level falls 1:11:22 - even further. 1:11:35 - But that you can now may is now， but to full employee as sorry as keep我shift覺得right。 1:11:40 - He can no me. 1:11:50 - Well no就moin se which is lower price level。 1:11:54 - Okay so economies back to you. 1:12:06 - Price level and by two不employment gdp。 1:12:11 - Right so unemployment will foll back to follow employment. 1:12:20 - No it s everyone good so understand. 1:12:26 - 說run situation and how either just bike就對龍軟。 1:12:31 - It s everyone good hah. 1:12:43 - Okay so given questions like that ind exam you will need to always start with economy at long running collaborate 1:12:46 - okay and then read the question and identified which way the agree the month care would be shifting in shifting to the 1:12:54 - lab then describe your diegrap and then okay how we can get type too long run because right so that is 1:13:01 - basically the decrease in igregate the murse you can basically go through the slides so i think the slights give you all the 1:13:12 - explanation that okay and how it actually adjust by so you can also go through the slide no less look at another 1:13:22 - scenario no assuming their recent increase in agricator man okay so what will happen now so increase in 1:13:30 - legricated month say basically there is a decrets in interests. 1:13:43 - Okay，所以adeque我們okay yeah increasing again the mon do you to lower interest rate that means c ni。 1:13:50 - Well increase which dan add will increase. 1:14:10 - Alright so you can see from my diagram has increase. 1:14:22 - Shifted to the rights。就AT two so what uppens it can no me will now move from point a to point be。 1:14:30 - Okay so economy is now going to move from a two big so i dentify what is happening at big so be it s now yes short 1:14:51 - running collaborate. 1:15:02 - App point be。我還surprise level，然後所以this was your price level eat equily bround price level price level 1:15:05 - goes huh. 1:15:19 - 五what happens to your real g d p。 1:15:21 - Remember this is sad the full employment j did it. 1:15:24 - Okay so a day as basically increased so weapons now. 1:15:31 - We can basically say with an increase in irricated month. 1:15:38 - No me decause. 1:15:49 - Real shift right. 1:15:57 - 喫？ A幾？ 1:16:05 - Economy won that be. 1:16:10 - At point be which remember point b is any collbrum because it s where agreed the mon intercide a s r a s so point 1:16:15 - be is any colorrum bar it is a short run account是so what happens now price level increase price level one what happens 1:16:27 - to real g d p real g d p. Increase. 1:16:42 - The why ea which is a real gd pet is now greater then the full employment or potential children. 1:16:46 - That means it cannot me is no bride ducing more when economics producing more. 1:17:01 - On her floyment will be now what. 1:17:14 - Right this is where some of you are probably confused now and go hang on a manute aison this is a full employment 1:17:21 - how can we then produce more than food and pull i mean now if you recall from last week can anyone才要美when 1:17:30 - we talk about full employment what does it make can anyone record when we talk about full language what the same mate 1:17:42 - 能完成members remember louse going to about four employment。 1:17:55 - It does not mean. 1:18:02 - On employment rate is zero percent. 1:18:07 - There is only nose quickle one employment but there is still like it s remember poo employment does not make 1:18:18 - unemployment rate is your percent there is zero percent sick pickle on employment but there is still. 1:18:26 - Frictional. 1:18:39 - And structure. 1:18:43 - 好的。 1:18:47 - Okay so this is why is very important to remember okay when we talk about four implement it does not mean the way got no more 1:18:51 - workers. There is remember naturally. 1:18:59 - There will always be frictional and structural unemployment so even though we are at for employment part 1:19:02 - there are still some people that are frictionally employed on employee instructionally unemployed so this is 1:19:09 - why then we are able to go beyond full employment alright so this is all show around a collaborate where it is 1:19:15 - possible to go beyond for employment because we still have got frictional and structural and improve worked 1:19:27 - spops， i want that哦。 1:19:34 - Alright so now how well they economy just back to long running collabor. 1:19:45 - Okay，所以adjustment， but就long run equipment。 1:19:56 - 我們so at point be what is happening at point b b basically we are going beyond you cannot me is beyond不employment 1:20:05 - which moans now. 1:20:26 - 對於linear short digis。 1:20:30 - We are inventurely running out the workers so remember at y p pull employment it said why pit. 1:20:36 - Right we still like frictional and stuff like that but there as we use more and more of this workers we are eventually going to get 1:20:48 - labor show tages when there are labor shoe pages what must firms do就attract works。 1:20:57 - So when they are not a lot of work is around and firms and businesses needs workers they are going to be willing 1:21:12 - 就offer higher way just going now the words were guess will net go ship four ah yeah we just right because now 1:21:21 - i know firms on businesses very difficult for them to find worked so if they want me那就baby better morning 1:21:35 - okay so we worked so now be able to negotiate for high wages and firms so have to pay highway just to get worked 1:21:44 - so when. From some businesses have to pay for higher wages what happens to cost a production also production 1:21:51 - well rice what happens then s. 1:22:00 - RANS problem decrease and shafe. 1:22:04 - 就是呃， so did means in this case now cost cost production is too high now s sorry as well now shift shift shafe the shift 1:22:08 - okay too new s r and scared there. 1:22:24 - What we call s r as two okay so what happens now s r a scarf will now shift to the left where will they cannot maybe now 1:22:34 - we now going to be a point see what happens to your price level price level goes up even higher. 1:22:48 - But they cannot me will be back to bo amplyment okay so exactly sorry gonna love it can no me will move to 1:23:00 - point se which is hire is level. 1:23:14 - And by two都很cloyment。 1:23:20 - Is every one good to suddenly want have any question. 1:23:27 - Right so one thing that you need to notice or realise here i just went back to long running color but which curve was the one that 1:23:38 - wa it will always be s r a escreptive if there is on employment okay at point be if there is unemployment then we 1:23:49 - say werkends will be willing to accept the world wages好actually it gone beyond for employment we got labor 1:24:00 - shortages workers who are so higher wages so it s always the s r a s cup shifting back to long run equipment if there 1:24:14 - is no policy next week when we look at using any policies it will be a different story at the moment i did not 1:24:29 - mention anything about any policy so the economy can just back by itself through workers adjusting their own wages 1:24:37 - 那麼with a supply shop so let s say that is a negative supply shock so for example。 1:24:46 - Increase in boy blocks like can increase in all the price do you to the current war going in the middle east okay 1:25:02 - so yeah what happens now remember oil price will affect your cost of production s s r a s. 1:25:14 - Well shift i guess we were increasing all the price this will increase a cost of pro所以說我basically then 1:25:26 - chiff to the laft. 1:25:41 - What happens now to the economy. 1:25:47 - Yes that s right herry and nothing currently with more world going on there is a predictional or prices going to 1:25:53 - go up again so current then you can say economy will be a point be哇他right level is going up okay real g d p。 1:26:00 - It s lower dinner potential g l p okay so whenever you real g d p so when your real different服務we can say that 1:26:16 - the economics actually in a recession. 1:26:33 - Okay， so that means you know earlier diegraph哦the sun okay where we say有YE is lower then your full employment 1:26:42 - so y it s less then full employment. 1:26:57 - 所以economy is in the recession。 1:27:01 - My cat sure the same now in this case with the a d falling the price level actually false when we got negative apply show 1:27:09 - you can see okay. How will the economy at just by look at one hundred unemployment has increased so with one employment 1:27:18 - increasing workers will be willing to accept the wages okay when work caseball like accept lower wages cost to 1:27:35 - production with four planer s r e. 1:27:43 - Scalable shift back to the right so that means initially with the negative shop it will shift to the left. 1:27:44 - Okay so initially with the negative supply shop oh it will shift to the left now how would it cheap back給我就 1:27:56 - 是price level，我for bug and we buy two following plumment okay so that is what this is basically showing it 1:28:06 - Hello right and the same thing i am so here you can see he shifted to the left and then it shifted back to the right 1:28:26 - okay okay let me quickly. 1:28:35 - So you are not the slide. 1:28:41 - So for example。所以北京i saw a s。 1:28:47 - Okay and if let s say s l r a school shift to the right. 1:29:01 - We are not going to be a point by. 1:29:08 - 有y， e is beyond for employment labor shortages then basically workers will also hire wages cause the production goes up and 1:29:11 - sorry asking for just she fat. 1:29:23 - 就嗯的left okay so whatever this supply shop to get back to long running collaboram is just for supplical shifting 1:29:25 - back that said okay, but with the demonstract obviously initially is the demonical shifting and to get by it 1:29:33 - is always the short run against supply kind of shifting so very important just make sure okay you go through the 1:29:41 - reaton explanation of the slides okay for example in this case. 1:29:50 - Okay and florida this one as well. 1:29:57 - Okay and then without negative supply shop so the summary here is basically to get back to long running club from when 1:30:03 - there is no policy it is always u s. 1:30:13 - Rescriptive next week or final talk to final topic we going to look at if the government implements policies 1:30:15 - okay how would it get the economy to the long run equipment okay so it cannot just by itself but we say it will be 1:30:26 - quite slow it will take quite a wall okay for workers to adjust the wages we you can immigrately tomorrow okay i am ask for 1:30:34 - high wages or accept lower wages like okay because most work so it will take about a year two years to actually 1:30:44 - get back to you along running clubbum and that is what next week when we say when the government the job some policies 1:30:51 - okay then it will get back to long running colorrum faster rather than we just wait for workets okay um to change their wages 1:30:57 - alright this any one have any question so just make sure okay you understand this quite well as a said it is will 1:31:08 - definitely be in the exam so just make sure start your diagram at long running collibram read the situation 1:31:21 - given easy gonna shift a d is it going to shift s r a shift that okay located ty grand explain who happens to the situation in the 1:31:30 - short run and then how it can adjust by t okay if the question is not as you就explain how it gets back to the long 1:31:42 - run then you don t have to um worry about the just but you can just describe the short run okay but if the 1:31:49 - question says explains should run end then the long run then that s why you will need to basically explain both the short run and the long run 1:31:54 - situ alright so very important and familiarize yourself on the factors tourship a d and s r a s now the other thing is if you notice 1:32:05 - did the long run against supply carship所以but for this close thirty so you need to know if anything it will 1:32:16 - be in a multiple choice question. 1:32:41 - For the application retain part we are going to share long run agree supply car is not shifting so it would just be what we 1:32:43 - call a basic or a static model. 1:32:53 - So you don t have to be worring about long run agree supplies of shifting okay in the application question as you can 1:32:56 - see here. I basically take not shif any of the long run agree supply okay but it is important to know that it is possible for it to 1:33:03 - sh alright okay either every more good.