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“ Redelsheimer’s Graphs to Know”  AP Macro Review Copyright 2005 GRAPHS 2 KNOW FOR THE AP MACRO EXAMINATION Mr. Redelsheim...
“ Redelsheimer’s Graphs to Know”  AP Macro Review Copyright 2005 Q Q Robots  (thousands) Pizzas (thousands) 14 13 12 11 10...
Production Possibilities Curve <ul><li>Shows :  </li></ul><ul><li>Opportunity Cost : More pizzas means less robots </li></...
“ Redelsheimer’s Graphs to Know”  AP Macro Review Copyright 2005 Price Level Real Domestic Output, GDP Q P AS AD AGGREGATE...
“ Redelsheimer’s Graphs to Know”  AP Macro Review Copyright 2005 Price Level Real Domestic Output, GDP Q P AS AD AS/AD: Re...
“ Redelsheimer’s Graphs to Know”  AP Macro Review Copyright 2005 Price Level Real Domestic Output, GDP Q P AS AD AS/AD: In...
“ Redelsheimer’s Graphs to Know”  AP Macro Review Copyright 2005 Price Level Real Domestic Output, GDP Q P AS AD 1 INCREAS...
“ Redelsheimer’s Graphs to Know”  AP Macro Review Copyright 2005 Price Level Real Domestic Output, GDP Q P AS 1 AD 1 DECRE...
AGGREGATE SUPPLY /   AGGREGATE DEMAND <ul><li>SHOWS:  </li></ul><ul><li>National Output: (Real GDP) </li></ul><ul><li>Empl...
“ Redelsheimer’s Graphs to Know”  AP Macro Review Copyright 2005 NOMINAL  interest rate, i Quantity of Money D m S m THE M...
“ Redelsheimer’s Graphs to Know”  AP Macro Review Copyright 2005 Real domestic output, GDP D m Investment Demand Graph rat...
“ Redelsheimer’s Graphs to Know”  AP Macro Review Copyright 2005 Real  Interest Rate, r Quantity of Loanable Funds LOANABL...
Loanable Funds Market Graph (Long-Term Interest Rates) <ul><li>What changes Supply :  </li></ul><ul><li>Increase in Househ...
“ Redelsheimer’s Graphs to Know”  AP Macro Review Copyright 2005 The Market for Yen Quantity of Yen Dollar Price of 1 Yen ...
“ Redelsheimer’s Graphs to Know”  AP Macro Review Copyright 2005 P Q Dy Sy Dollar price of one Yen Quantity of Yen 3 2 1 D...
“ Redelsheimer’s Graphs to Know”  AP Macro Review Copyright 2005 Annual rate of inflation (percent) Unemployment rate (per...
“ Redelsheimer’s Graphs to Know”  AP Macro Review Copyright 2005 Annual rate of inflation (percent) Unemployment rate (per...
Phillips Curve <ul><li>Short run trade-off between inflation and unemployment.  </li></ul><ul><li>In the Long Run there  i...
“ Redelsheimer’s Graphs to Know”  AP Macro Review Copyright 2005 TWO WAYS TO SHOW ECONOMIC GROWTH A B C D Capital Goods Co...
Causes of Economic Growth <ul><li>1. Increased investments in Capital Stock.  </li></ul><ul><li>2. Increased investments i...
“ Redelsheimer’s Graphs to Know”  AP Macro Review Copyright 2005 BUSINESSES HOUSEHOLDS RESOURCES INPUTS $ COSTS $ INCOMES ...
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Graphs 2 Know For The AP Econ Exam

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Graphs 2 Know For The AP Econ Exam

  1. 1. “ Redelsheimer’s Graphs to Know” AP Macro Review Copyright 2005 GRAPHS 2 KNOW FOR THE AP MACRO EXAMINATION Mr. Redelsheimer AP Macroeconomics 2007-2008
  2. 2. “ Redelsheimer’s Graphs to Know” AP Macro Review Copyright 2005 Q Q Robots (thousands) Pizzas (thousands) 14 13 12 11 10 9 8 7 6 5 4 3 2 1 1 2 3 4 5 6 7 8 A B C D E W Attainable but Inefficient Unattainable Attainable & Efficient PRODUCTION POSSIBILITIES
  3. 3. Production Possibilities Curve <ul><li>Shows : </li></ul><ul><li>Opportunity Cost : More pizzas means less robots </li></ul><ul><li>Unempolyment / Inefficiency : Inside the curve </li></ul><ul><li>Efficiency : On the curve </li></ul><ul><li>Economic Growth : Curve shifts to the right </li></ul>“ Redelsheimer’s Graphs to Know” AP Macro Review Copyright 2005
  4. 4. “ Redelsheimer’s Graphs to Know” AP Macro Review Copyright 2005 Price Level Real Domestic Output, GDP Q P AS AD AGGREGATE DEMAND / AGGREGATE SUPPLY Equilibrium Real Output Y P
  5. 5. “ Redelsheimer’s Graphs to Know” AP Macro Review Copyright 2005 Price Level Real Domestic Output, GDP Q P AS AD AS/AD: Recession Equilibrium Real Output AS LR Long Run Aggregate Supply (Full Employment) Y P
  6. 6. “ Redelsheimer’s Graphs to Know” AP Macro Review Copyright 2005 Price Level Real Domestic Output, GDP Q P AS AD AS/AD: Inflation: Beyond Full Employment Equilibrium Real Output AS LR Long Run Aggregate Supply (Full Employment) Y f Y 1 P
  7. 7. “ Redelsheimer’s Graphs to Know” AP Macro Review Copyright 2005 Price Level Real Domestic Output, GDP Q P AS AD 1 INCREASES IN AD: DEMAND-PULL INFLATION P 2 P 1 AD 2 Yf Y1
  8. 8. “ Redelsheimer’s Graphs to Know” AP Macro Review Copyright 2005 Price Level Real Domestic Output, GDP Q P AS 1 AD 1 DECREASES IN AS: COST-PUSH INFLATION P 2 Y 1 Y 2 AS 2 P 1
  9. 9. AGGREGATE SUPPLY / AGGREGATE DEMAND <ul><li>SHOWS: </li></ul><ul><li>National Output: (Real GDP) </li></ul><ul><li>Employment and Unemployment </li></ul><ul><li>Price Level </li></ul>“ Redelsheimer’s Graphs to Know” AP Macro Review Copyright 2005 <ul><li>Aggregate Demand Curve </li></ul><ul><li>Down Sloping Due To: </li></ul><ul><ul><li>Real-Balances Effect </li></ul></ul><ul><ul><li>Interest-Rate Effect </li></ul></ul><ul><ul><li>Foreign Purchases Effect </li></ul></ul>
  10. 10. “ Redelsheimer’s Graphs to Know” AP Macro Review Copyright 2005 NOMINAL interest rate, i Quantity of Money D m S m THE MONEY MARKET Shift the Supply curve (always vertical) when FED changes the money supply to change nominal interest rates! i <ul><li>If Nominal GDP Increases, Transactions Demand increases, and Dm Curve Shifts to the right. </li></ul><ul><li>If Asset Demand for money increases, Dm Curve shifts to right </li></ul>
  11. 11. “ Redelsheimer’s Graphs to Know” AP Macro Review Copyright 2005 Real domestic output, GDP D m Investment Demand Graph rate of interest, i 10 8 6 0 Qty. of Money Amount of investment, I MONETARY POLICY AND EQUILIBRIUM GDP S m1 AS AD 1 (I=$15) P 1 10 8 6 0 S m2 AD 3 (I=$25) P 2 If the Money Supply Increases to Stimulate the Economy… <ul><li>Interest Rate Decreases </li></ul><ul><li>Investment Increases </li></ul><ul><li>AD & GDP Increases </li></ul><ul><li>with slight inflation </li></ul>Price level AD 2 (I=$20) P 3 S m3 <ul><li>Increasing money supply </li></ul><ul><li>continues the growth – </li></ul><ul><li>but, watch Price Level. </li></ul>ID rate of interest, i Money Market Graph
  12. 12. “ Redelsheimer’s Graphs to Know” AP Macro Review Copyright 2005 Real Interest Rate, r Quantity of Loanable Funds LOANABLE FUNDS MARKET r D Q S This graph shows how the supply and demand for loanable funds affects real interest rates!
  13. 13. Loanable Funds Market Graph (Long-Term Interest Rates) <ul><li>What changes Supply : </li></ul><ul><li>Increase in Household savings </li></ul><ul><li>Increase in Gov’t savings </li></ul><ul><li>Increase in Business savings </li></ul><ul><li>Increase in Business savings </li></ul><ul><li>Increase in Foreigners’ savings </li></ul>“ Redelsheimer’s Graphs to Know” AP Macro Review Copyright 2005 <ul><li>What changes Demand : </li></ul><ul><li>Increase in Household borrowing </li></ul><ul><li>Increase in business Investment </li></ul><ul><li>Increase in Foreign borrowing </li></ul><ul><li>Increase in Government borrowing (When the gov’t has a budget deficit!) = (the crowding -out effect) </li></ul>
  14. 14. “ Redelsheimer’s Graphs to Know” AP Macro Review Copyright 2005 The Market for Yen Quantity of Yen Dollar Price of 1 Yen 0 P Q Q e S y D y THE FOREIGN EXCHANGE MARKET
  15. 15. “ Redelsheimer’s Graphs to Know” AP Macro Review Copyright 2005 P Q Dy Sy Dollar price of one Yen Quantity of Yen 3 2 1 Dollar depreciates Dollar appreciates The Market for Yen THE FOREIGN EXCHANGE MARKET
  16. 16. “ Redelsheimer’s Graphs to Know” AP Macro Review Copyright 2005 Annual rate of inflation (percent) Unemployment rate (percent) 7 6 5 4 3 2 1 0 1 2 3 4 5 6 7 As inflation declines... THE PHILLIPS CURVE CONCEPT unemployment increases And vice versa! SRPC
  17. 17. “ Redelsheimer’s Graphs to Know” AP Macro Review Copyright 2005 Annual rate of inflation (percent) Unemployment rate (percent) 7 6 5 4 3 2 1 0 1 2 3 4 5 6 7 THE PHILLIPS CURVE CONCEPT SRPC 1 LRPC = Is the natural Rate of Unemployment SRPC 2 With Stagflation, Shift SRPC to the right With AD shift, move along existing SRPC
  18. 18. Phillips Curve <ul><li>Short run trade-off between inflation and unemployment. </li></ul><ul><li>In the Long Run there is no trade off. The long run Phillips curve is Vertical! </li></ul><ul><li>Stagflation (an increase in Unemployment and inflation) or an Aggregate Supply Shock will shift the SRPC to the right. </li></ul><ul><li>Decreases in Inflation and Unemployment will shift the SRPC to the left. (and increase in AS would cause this) </li></ul>“ Redelsheimer’s Graphs to Know” AP Macro Review Copyright 2005
  19. 19. “ Redelsheimer’s Graphs to Know” AP Macro Review Copyright 2005 TWO WAYS TO SHOW ECONOMIC GROWTH A B C D Capital Goods Consumer Goods Price Level Real GDP AS LR1 AS LR2 Q 1 Q 2
  20. 20. Causes of Economic Growth <ul><li>1. Increased investments in Capital Stock. </li></ul><ul><li>2. Increased investments in Human Capital (education, training) and increases in quantity of human resources </li></ul><ul><li>3. New Technology leading to increased productivity </li></ul><ul><li>4. Increase in quantity and quality of natural resources </li></ul>“ Redelsheimer’s Graphs to Know” AP Macro Review Copyright 2005
  21. 21. “ Redelsheimer’s Graphs to Know” AP Macro Review Copyright 2005 BUSINESSES HOUSEHOLDS RESOURCES INPUTS $ COSTS $ INCOMES PRODUCT MARKET GOODS & SERVICES GOODS & SERVICES $ CONSUMPTION $ REVENUE GOVERNMENT RESOURCE MARKET Circular Flow Model

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