Key Macro Graphs - Production Possibilities Curve

Key Macro Graphs
- Production Possibilities Curve
- Full employment, recession, and points that are unattainable
- Which point leads to greater economic growth? (more capital goods)
- Opportunity costs
- With specific opportunity costs for use with Comparative Advantage and Trade problems.
- Money Market
- Show the effect of monetary (contractionary or expansionary) on the money supply, the
quantity of money demanded, and the nominal interest rate.
- Long-run AD/AS
- In recession (below full employment)
- Above full employment
- In long-run equilibrium
- Show the effects (on output and price level) of:
- Changes in aggregate demand (C, G, I, or Xn)
- Changes in aggregate supply
- Show the effects (on output and price level) of:
- Fiscal policy (Don’t forget about the spending and tax multipliers!)
- Expansionary
- Contractionary
- Monetary policy
- Expansionary
- Contractionary
- In other words, be able to show how changes in the interest rate will affect
aggregate demand (through a change in investment spending or interestsensitive consumer spending, like car loans).
- Demonstrate economic growth using the LRAS curve.
- LRAS = the Natural Rate of Unemployment
- Show how the economy will return to long-run equilibrium.
- Bank Balance Sheets – you won’t have to draw them (probably), but you will have to interpret them.
- Phillips Curve (long-run and short-run)
- Movement along the SRPC (caused by a change in AD)
- Shift of the SRPC (caused by a change in AS or a change in inflationary expectations)
- LRPC is vertical at the natural rate of unemployment.
- Represent full employment, recession, and above full employment as points on the Phillips
Curve (long-run and short-run together are required).
- Loanable Funds
- Demonstrate how changes in the demand for and/or supply of loanable funds affect the real
interest rate.
- Foreign Exchange Market
- Show how changes in the demand for or supply of a currency will affect its value on the foreign
exchange market. (Interest rates, price level, income (GDP), and tastes and preferences – all of these
determine demand for a country’s currency)
Key Micro Graphs
- PPC (regular and with opportunity cost Comparative Advantage and Trade)
- Supply and Demand (basic market structure)
- Elasticity of Supply and Demand (determine elasticity from graph)
- Supply and Demand with Price Ceiling
- Supply and Demand with Price Floor
- Supply and Demand with Quota
- Supply and Demand with Per-unit Tax (calculate price, new consumer and producer surplus,
tax revenue, and deadweight loss)
- Consumer Surplus, Producer Surplus, and Deadweight Loss in all the above
- Cost Curves: Marginal cost, Average variable cost, Average fixed cost, Average total cost, Long-run
average total cost
- Perfect competition: firm and industry (and side-by-side)
- Equilibrium price and quantity for firm and market
- Shift supply and demand curves as needed.
- Short-run changes
- Long-run equilibrium (price = average total cost)
- Area of profit or loss
- Monopoly
- Profit-maximizing quantity
- Profit-maximizing price
- Area of economic profit or loss
- Socially optimal (or allocatively efficient) level of production
- Production where there is zero economic profit (price = ATC)
- Monopoly with price discrimination.
- Oligopoly matrix (Game theory)
- Dominant strategy if there is one.
- Nash equilibrium
- Factor Markets (primarily the labor market)
- Side-by-side graphs of the labor market for firm and industry in a perfectly competitive labor
- Graph of a monopsonistic labor market. Including the quantity of labor the monopsonist will
hire and the wage it will pay.
- Market Failure (externalities)
- Lorenz Curve – You may or may not see one on the multiple choice section. You’re certainly not going
to have to draw one. Just re-familiarize yourself with what the Lorenz curve shows and what its shape is.
See the Lorenz Curve PowerPoint in Micro Unit 5 if you need a quick review.