AP Economics

Mr. Bernstein

Macro Graphs Review

April 2015

2

The Production Possibilities Curve

AP EconomicsMr. Bernstein

3

Economic Growth• Concave due to “Law of increasing opportunity costs”

AP EconomicsMr. Bernstein

4

Circular Flow Diagram

AP EconomicsMr. Bernstein

5

Expanded Circular Flow Diagram

AP EconomicsMr. Bernstein

6

AP EconomicsMr. Bernstein

Money Market• Assumes fixed MS; Y axis is Nominal Rates

• Know shifters of MD

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AP EconomicsMr. Bernstein

Loanable Funds Market• Supply is upward sloping; Y axis is Real Rates

• Know shifters of S, D

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AP EconomicsMr. Bernstein

Contractionary Monetary Policy and Rates• Fed sells securities, rates rise

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AP EconomicsMr. Bernstein

Contractionary Monetary Policy & the Economy• Increases in rates leads to decrease in Investment, AD

10

AP EconomicsMr. Bernstein

Long-Run Macroeconomic Equilibrium• Returns to LRAS via shift in SRAS

11

AP EconomicsMr. Bernstein

Short-Run and Long-Run Effects of Increase in MS• Short-run shift in AD offset by shift in SRAS• LRAS does not shift; only P increases

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AP EconomicsMr. Bernstein

Short-Run Phillips Curve• Tradeoff between inflation and unemployment

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AP EconomicsMr. Bernstein

Long-Run Phillips Curve• LRPC = Natural Rate of Unemployment

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AP EconomicsMr. Bernstein

Exchange Rates• Labeling: think “bottom/bottom”