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Models in AP Economics

Models in AP Economics. Sally Meek Sally.meek@pisd.edu. Models in AP Macroeconomics. Let’s focus on models Directions for FRQ’s include: …….

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Models in AP Economics

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  1. Models in AP Economics Sally Meek Sally.meek@pisd.edu

  2. Models in AP Macroeconomics

  3. Let’s focus on models Directions for FRQ’s include: ……. … it is not enough to list the results of your analysis. Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must have all axes and curves clearly labeled and must show directional changes. Use a pen with black or dark blue ink.

  4. Production Possibilities Frontier (opportunity cost, economic growth, trade) • Circular Flow Model (National Income Accounting) • Market Supply and Demand (foreign exchange markets) Macroeconomics Key Graphs

  5. Aggregate Supply and Demand, • Including LRAS • (monetary policy, fiscal policy, market self regulation) • Investment demand • Money Market • (monetary policy) Macroeconomics Key Graphs

  6. Loanable funds market (fiscal policy) • Phillips Curve – short run and long run Macroeconomics Key Graphs

  7. Increasing opportunity costs Constant opportunity costs Good X Good X Good Y Good Y Production Possibility Frontier

  8. Radios Radios 3 2 12 4 Wheat Wheat Using PPFs and comparative advantage

  9. Assume they trade 1 r for 3 w Radios 4 Radios 3 2 12 4 6 Wheat Wheat Using PPFs and CPFs

  10. Product Market Consumption expenditures Goods and services Net taxes Net taxes Government Firms Households Public goods and services Public goods and services Land, labor, capital. entrepreneurial ability Rent, wages, interest, profits Resource Market Circular Flow Model

  11. P S P1 D Q Q1 Perfectly Competitive Market

  12. Demand • Changes in: • Taste and preference • Income • Marketsize (# of buyers) • Consumer expectations • Price of related goods • complements or substitutes • Supply • Changes in: • Resource prices • Technology • Number of sellers • Producer expectations • Taxes and subsidies • Price of alternative goods Non-price determinants

  13. S$ Yen/$ $/Yen SYen D$1 SYen1 D$ DYen USD Yen Currency Markets Supply and Demand

  14. Changes in any of the following: • Relative real interest rates • Relative price levels • Relative national income • Taste for imports • Speculation Determinants of Exchange Rates

  15. LRAS PL SRAS PL1 AD=C+Ig+G+Xn Yf RGDP Aggregate Supply and Demand

  16. LRAS – changes in technology, productivity, and the quantity or quality of land, labor, capital • SRAS – changes in input costs and inflation expectations • AD – changes in personal consumption spending, gross private domestic investment, government purchases and net exports Determinants

  17. RIR (As compared to the expected rate of return) • As RIR changes the quantity of • Investment demanded changes • Other determinants shift the ID curve: • costs of capital • business taxes • Technology • expectations ID Q Investment Demand

  18. MS NIR • MS – affected by actions of the • Federal Reserve • MD – • Transaction demand • determined by GDP • Asset demand • determined by NIR i1 MD Q1 Q Money Market

  19. RIR • Supply of Loanable Funds: • personal savings and • financial capital from • abroad • Demand for Loanable Funds: • firms demand for funds for • capital and interest • sensitive consumption S LF r1 D LF Q1 Q Loanable Funds Market

  20. LRPC Inflation rate 4% 2% SRPC (assumes 4 % expected inflation at each UR) SRPC (assumes 2% expected inflation at each UR) Natural rate of unemployment Unemployment rate Phillips Curve – LR and SR

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