Essential graphs for AP Macroeconomics

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Oct 28, 2013 (4 years and 2 months ago)

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Essential graphs for AP Macroeconomics

Production Possibilities Curve












Demand and Supply

√ Market clearing equilibrium
















































































Floors and Ceilings












































































Variations:

• Shifts in demand and
supply caused by
changes in determinants

• Changes in slope caused by changes in
elasticity

•Effect of Quotas and Tariffs


F

A

C

B

G

o

o

d


X

Good Y

D

E

W

Concepts:


• Points on the curve
-
efficient

• Points inside the curve
-
inefficient

• Points outside the curve
-
unattainable with
available resources

• Gains in technology or resources favoring
one good both not other.

D

S

P

Q

P
e

Q
e

P
e

Q
e

D

S

P

Q

Floor

Q
D

Q
S

• Creates surplus

• Q
d
<Q
s

P
e

Q
e

D

S

P

Q

Ceiling

Q
S

Q
D

• Creates shortage

• Q
d
>Q
s

Consumer and Producer Surplus
















































































































Circular Flow Model
-
basic

In general terms,


The resource m
arket can measure the GDP using the Income Approach


The product market can measure the GDP using the Expenditure Approach



D

S

P

Q

P
e

Q
e

Consumer surplus

Producer surplus

Four phases of the business cycle



























































































Equilibrium using Aggregate Demand and Supply



occurs at the intersection of the
Aggregate Demand and Aggregate Supply curve setting the equilibrium price level and output. Q
f
is the
output at full employment.

Classical
-
Keynesian Model (not in favor)




E
xtended AD/AS Model









































































































Real

GDP

Periods of Time

Peak

prosperity

Long
-
term Growth Rate

Recovery

Expansion

Recession


Contraction

Trough

Depression

THE BUSINESS CYCLE

P

AS

P

r

i

c

e


L

e

v

e

l


Real GDP

Q
f

Q

Equilibrium
m

AD

AS
lr

AS
sr

AD

P

r

i

c

e


L

e

v

e

l

Real GDP

Q
f



Phillips Curve
-
short and long run











































Laffer Curve





















































potential output

c

a

e

e

d

d

c

b

b

a

SR Phillips
curve

LR Phillip
s
curve

Rate

of

I

n

f

l

a

t

I

o

n


Unemployment

rate

PL

Real GDP

A
S

AD
1

AD
2

AD
3

Tax
Rate

100

n

m

m

l

0

Tax Revenue

Maximum revenue

Laffer Curve…shows the relationship between tax rates and tax revenues




Up to point m
,
higher tax rates will result in larger tax revenues
. But still
higher tax rates

will adversely affect incentives to w
ork and produce
, reducing the
size of the tax base and reducing tax revenues.



Lower tax rates will lessen tax evasion and avoidance, and reduce government
transfer payments.









































Freely floating (flexible) exchange rates
















































S
m

i
%


$$ demanded

D
m

Q

i%

i%

Q of loanable funds

D

S

Money Market…
supply of money is a
vertical line

since
monetary authorities
(FED) and financial institutions have
provided the economy with a certain stock
of money.

The Price axis is the rate of interest and $$
is the amount of money demanded at that
rate.


Loanable Funds Money
Market


The
Interest rate is
determined here

. Fewer investment
projects will be undertaken when the
interest rate rises. More investment
projects will be undertaken when the
interest rate falls.


S

D

$ Price of

F
oreign
Currency

Quantity of Foreign Currency

The intersection will be
the exchange rate.

The
demand

for any currency is
downsloping because as the currency
becomes less expensive to obtain, people
will be able to buy more of that nation’s

Goods & Services and therefore need more
of that currency.

The
supply

is upsloping because as its price
rises
, holders obtain more of their
currencies more cheaply and will want to
buy more important goods and therefore
give up more of their currency to obtain
other currencies.