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# Graphs 2 Know For The AP Macro Economics Exam

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### Transcript of "Graphs 2 Know For The AP Macro Economics Exam"

1. 1. “Redelsheimer’s Graphs to Know” AP Macro Review Copyright 2010<br />GRAPHS 2 KNOW<br />FOR THE AP MACRO<br />EXAMINATION<br />AP Macroeconomics<br />2010<br />
2. 2. PRODUCTION POSSIBILITIES<br />Q<br />14<br />13<br />12<br />11<br />10<br /> 9<br /> 8<br /> 7<br /> 6<br /> 5<br /> 4<br /> 3<br /> 2<br /> 1<br />Unattainable<br />A<br />B<br />C<br />W<br />Attainable<br />& Efficient<br />D<br />Robots (thousands)<br />Attainable<br />but<br />Inefficient<br />E<br />Q<br /> 1 2 3 4 5 6 7 8<br />Pizzas (thousands)<br />“Redelsheimer’s Graphs to Know” AP Macro Review Copyright 2010<br />
3. 3. “Redelsheimer’s Graphs to Know” AP Macro Review Copyright 2010<br />Production Possibilities Curve<br />Shows: <br />Opportunity Cost: More pizzas means less robots<br />Unemployment / Inefficiency: Inside the curve<br />Efficiency: On the curve<br />Economic Growth: Curve shifts to the right<br />
4. 4. “Redelsheimer’s Graphs to Know” AP Macro Review Copyright 2010<br />AGGREGATE DEMAND / AGGREGATE SUPPLY<br />P<br />AS<br />Equilibrium<br />Real Output<br />Price Level<br />P<br />AD<br />Q<br />Y <br />Real Domestic Output, GDP<br />
5. 5. “Redelsheimer’s Graphs to Know” AP Macro Review Copyright 2010<br />AS/AD: Recession<br />(Recessionary Gap)<br />Long Run Aggregate <br />Supply (Full Employment)<br />ASLR<br />P<br />AS<br />Equilibrium<br />Real Output<br />Price Level<br />P<br />AD<br />Q<br />Y <br />Real Domestic Output, GDP<br />
6. 6. “Redelsheimer’s Graphs to Know” AP Macro Review Copyright 2010<br />AS/AD: Inflation: Beyond Full Employment<br />(Inflationary Gap)<br />Long Run Aggregate <br />Supply (Full Employment)<br />ASLR<br />P<br />AS<br />Equilibrium<br />Real Output<br />P<br />Price Level<br />AD<br />Q<br />Y f<br />Y 1<br />Real Domestic Output, GDP<br />
7. 7. “Redelsheimer’s Graphs to Know” AP Macro Review Copyright 2010<br />INCREASES IN AD: <br />DEMAND-PULL INFLATION<br />P<br />AS<br />AD1<br />AD2<br />P2<br />Price Level<br />P1<br />Q<br />Y1<br />Yf<br />Real Domestic Output, GDP<br />
8. 8. “Redelsheimer’s Graphs to Know” AP Macro Review Copyright 2010<br />DECREASES IN AS: <br />COST-PUSH INFLATION<br />AS2<br />P<br />AS1<br />P2<br />Price Level<br />P1<br />AD1<br />Q<br />Y1<br />Y 2<br />Real Domestic Output, GDP<br />
9. 9. “Redelsheimer’s Graphs to Know” AP Macro Review Copyright 2010<br />AGGREGATE SUPPLY / AGGREGATE DEMAND<br />SHOWS: <br />National Output: (Real GDP)<br />Employment and Unemployment<br />Price Level<br />Aggregate Demand Curve<br />Down Sloping Due To:<br /><ul><li> Real-Balances Effect
10. 10. Interest-Rate Effect
11. 11. Foreign Purchases Effect</li></li></ul><li>“Redelsheimer’s Graphs to Know” AP Macro Review Copyright 2010<br />THE MONEY MARKET<br />Shift the Supply curve (always vertical) when FED changes the money supply to change nominalinterest rates! <br />Sm<br /><ul><li>If Nominal GDP Increases, Transactions Demand increases, and Dm Curve Shifts to the right.
12. 12. If Asset Demand for money increases, Dm Curve shifts to right</li></ul>NOMINAL interest rate, i<br />i<br />Dm<br />Quantity of Money<br />
13. 13. MONETARY POLICY AND EQUILIBRIUM GDP<br />Sm1<br />Sm2<br />Sm3<br />Investment<br />Demand Graph<br />Money Market <br />Graph<br />10<br /> 8<br /> 6<br /> 0<br />10<br /> 8<br /> 6<br /> 0<br />rate of interest, i<br />rate of interest, i<br />Dm<br />ID<br />Qty. of Money<br />Amount of investment, I<br />If the Money Supply<br />Increases to Stimulate<br />the Economy…<br />AS<br /><ul><li>Interest Rate Decreases</li></ul>P3<br /><ul><li>Investment Increases</li></ul>Price level<br /><ul><li>AD & GDP Increases</li></ul> with slight inflation<br />P2<br />AD3(I=\$25)<br />P1<br /><ul><li>Increasing money supply</li></ul> continues the growth –<br /> but, watch Price Level.<br />AD2(I=\$20)<br />AD1(I=\$15)<br />Real domestic output, GDP<br />“Redelsheimer’s Graphs to Know” AP Macro Review Copyright 2010<br />
14. 14. “Redelsheimer’s Graphs to Know” AP Macro Review Copyright 2010<br />LOANABLE FUNDS MARKET<br />S<br />This graph shows how the supply and demand for loanable funds affects real interest rates!<br />Real Interest Rate, r<br />r<br />D<br />Q<br />Quantity of Loanable Funds<br />
15. 15. “Redelsheimer’s Graphs to Know” AP Macro Review Copyright 2010<br />Loanable Funds Market Graph(Long-Term Interest Rates)<br />What changes Supply: <br />Increase in Household savings<br />Increase in Gov’t savings<br />Increase in Business savings<br />Increase in Business savings<br />Increase in Foreigners’ savings<br />What changes Demand: <br />Increase in Household borrowing<br />Increase in business Investment<br />Increase in Foreign borrowing<br />Increase in Government borrowing (When the gov’t has a budget deficit!) = (the crowding -out effect)<br />
16. 16. “Redelsheimer’s Graphs to Know” AP Macro Review Copyright 2010<br />THE FOREIGN EXCHANGE MARKET<br />The Market for Yen<br />P<br />Sy<br />Dollar Price of a Yen<br />Dy<br />0<br />Q<br />Qe<br />Quantity of Yen<br />
17. 17. THE FOREIGN EXCHANGE MARKET<br />The Market for Yen<br />P<br />Sy<br />3<br />2<br />1<br />Dollar<br />depreciates<br />Dollar price of a Yen<br />Dollar<br />appreciates<br />Dy<br />Q<br />Quantity of Yen<br />“Redelsheimer’s Graphs to Know” AP Macro Review Copyright 2010<br />
18. 18. “Redelsheimer’s Graphs to Know” AP Macro Review Copyright 2010<br />THE PHILLIPS CURVE CONCEPT<br />7<br />6<br />5<br />4<br />3<br />2<br />1<br />0<br />As inflation declines...<br />Annual rate of inflation<br />(percent)<br />unemployment<br /> increases<br />And vice versa!<br />SRPC<br />1 2 3 4 5 6 7<br />Unemployment rate (percent)<br />
19. 19. “Redelsheimer’s Graphs to Know” AP Macro Review Copyright 2010<br />THE PHILLIPS CURVE CONCEPT<br />LRPC = Is the natural<br />Rate of Unemployment<br />7<br />6<br />5<br />4<br />3<br />2<br />1<br />0<br />With Stagflation, Shift SRPC to the right<br />With AD shift, move along existing SRPC<br />Annual rate of inflation<br />(percent)<br />With AS shift, shift SRPC<br />SRPC 2<br />SRPC 1<br />1 2 3 4 5 6 7<br />Unemployment rate (percent)<br />
20. 20. “Redelsheimer’s Graphs to Know” AP Macro Review Copyright 2010<br />Phillips Curve<br />Short run trade-off between inflation and unemployment. <br />In the Long Run there is no trade off. The long run Phillips curve is Vertical!<br />Stagflation (an increase in Unemployment and inflation) or an Aggregate Supply Shock will shift the SRPC to the right. <br />Decreases in Inflation and Unemployment will shift the SRPC to the left. (and increase in AS would cause this)<br />
21. 21. TWO WAYS TO SHOW ECONOMIC GROWTH<br />ASLR1<br />ASLR2<br />C<br />A<br />Price Level<br />Capital Goods<br />B<br />D<br />Q1<br />Q2<br />Consumer Goods<br />Real GDP<br />“Redelsheimer’s Graphs to Know” AP Macro Review Copyright 2010<br />
22. 22. “Redelsheimer’s Graphs to Know” AP Macro Review Copyright 2010<br />Causes of Economic Growth<br />1. Increased investments in Capital Stock. <br />2. Increased investments in Human Capital (education, training) and increases in quantity of human resources<br />3. New Technology leading to increased productivity<br />4. Increase in quantity and quality of natural resources<br />
23. 23. “Redelsheimer’s Graphs to Know” AP Macro Review Copyright 2010<br />Circular Flow Model<br />\$ COSTS<br />\$ INCOMES<br />RESOURCE<br />MARKET<br />RESOURCES<br />INPUTS<br />BUSINESSES<br />GOVERNMENT<br />HOUSEHOLDS<br />GOODS &<br />SERVICES<br />GOODS &<br />SERVICES<br />PRODUCT<br />MARKET<br />\$ CONSUMPTION<br />\$ REVENUE<br />