We have been discussing the various economic scenarios and policies that cause the aggregate demand and aggregate supply curves to shift left or right in the ADAS Model (highlighted in the Whiteboard Review Video). This is an opportunity to apply that knowledge to a real world scenario.

1. Excerpt from FOMC Statement Released November 16, 1999

"The Federal Open Market Committee today voted to raise its target for the federal funds rate by 25 basis points to 5-1/2 percent. In a related action, the Board of Governors approved a 25 basis point increase in the discount rate to 5 percent.

Although cost pressures appear generally contained, risks to sustainable growth persist. Despite tentative evidence of a slowing in certain interest-sensitive sectors of the economy and of accelerating productivity, the expansion of activity continues in excess of the economy's growth potential. As a consequence, the pool of available workers willing to take jobs has been drawn down further in recent months, a trend that must eventually be contained if inflationary imbalances are to remain in check and economic expansion continue."

\fLRAS Price Level SRAS PL1 AD Real GDP Y1 YLRAS Price Level SRAS PL1 AD Y1 Real GDP Y\fLRAS Price Level SRAS PL1 AD Real GDP Y Y1