MACRO FINAL REVIEW
All about PPF Curves
Qty of
Computers
4,000
3,000
2,300
2,200
0
G
A
600 650
1,000
Qty of
Cars
2-Types of Demand Changes
• 1) Change in QUANTITY Demanded
•
Only price changes
(move along existing curve)
• 2) Change in Demand
•
Shift in Demand Curve (new demand curve needed)
D1
Determinants of Demand/Supply
(TIPSEN)
•
•
•
•
•
•
Tastes
Incomes
Price Complements
Substitute Price
Expectations
Number of Buyers
(TINE) & (TP)
•
•
•
•
•
•
•
Technology
Input Prices
Number of Sellers
Expectations
Also: TP
Taxes or Subsidies
Price of other outputs
P
Result if both shifts occur:
S1
P1
S2
E1
D2
D1
Qty
Q
Result if only one shift happens:
Increase in demand:
P
Qty
Increase in supply:
P
Qty
Quantity
must increase.
Price is
Indeterminate
Price Ceiling & Floors
S1
$900
.
E1
Price Ceiling
$600
D1
3,000
Computers
Savings & Consumption
• DI = Consumption + Savings
• MPC + MPS = 1
• Multipliers:
–
Gov’t Spending Multiplier
Tax Multiplier
AD/AS Model
Price
Level
LRAS
SRAS
Why AD downward sloping
Why SRAS upward sloping
Why LRAS vertical?
What Shifts AD?
AD
Y1
Real
GDP
Shifts in Aggregate Supply
• Shifts occur when you have a change in:
–
–
–
–
–
–
–
Expected Price Level
Input Prices
Labor
Capital
Natural resources
Technology
Gov’t Incentives
BOTH WILL:
shift SRAS but not LRAS
Changes in the other 5 variables
Will shift BOTH curves (LRAS & SRAS)
Goal of an Economy: Shift AS
PPF Graph
Price
Level
LRAS1
Y1
LRAS2
Y2
Real
GDP
Why the USA
had a strong
Economy during
1980’s & 1990’s
Phillips Curve Short & Long Run
The Phillips Curve
(b) The Phillips Curve
Inflation
Rate
Inflation
Rate
(percent
per year)
6
Long-run Phillips
curve
3. . . . and
increases the
inflation rate . . .
B
B
A
A
2
Phillips curve
0
4
(output is
8,000)
Unemployment
7
(output is Rate (percent)
7,500)
0
Natural rate of
unemployment
Unemployment
Rate
Loanable Funds
Real
Interest
Rate
--------------
-------------
i1
S1
Q1
Crowding Out?
Investment Tax Credit
E1
D1
Qty
Loanable Funds
MONEY MARKET
Nominal
Interest
Rate
Monetary Policy:
MS1
i1 --------MD
Qty of $
Graphing Exchange Rates
S1
Euro Price
of a dollar
House of
Money
--------------
.75 Euro --------------
Q1
D1
Qty of Dollars
Sample
Price
Level
Economy below Full Employment
U.S. dollar depreciates
LRAS
SRAS
AD
Y1
Real
GDP