MACRO FINAL REVIEW. Qty of Cars 2,200 600 2,300 650 0 4,000 3,000 1,000 Qty of Computers A G All about PPF Curves.

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Presentation transcript:

MACRO FINAL REVIEW

Qty of Cars 2, , ,000 3,000 1,000 Qty of Computers A G All about PPF Curves

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) D1D1

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 Qty S1S1 D1D1 P1P1 Q D2D2 Increase in demand: Increase in supply: S2S2 Quantity must increase. Price is Indeterminate PQty P Result if only one shift happens: Result if both shifts occur: E1E1

Price Ceiling & Floors D1D1 S1S1 $900 E1E1 Price Ceiling. $ 600 3,000 Computers

Savings & Consumption DI = Consumption + Savings MPC + MPS = 1 Multipliers: – Gov’t Spending Multiplier Tax Multiplier

Price Level Real GDP AD Y1Y1 LRAS SRAS Why AD downward sloping Why SRAS upward sloping Why LRAS vertical? What Shifts AD? AD/AS Model

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)

Price Level Real GDP Y1Y1 LRAS 1 LRAS 2 Goal of an Economy: Shift AS PPF Graph Y2Y2 Why the USA had a strong Economy during 1980’s & 1990’s

Phillips Curve Short & Long Run Natural rate of unemployment Long-run Phillips curve Unemployment Rate 0 Inflation Rate The Phillips Curve B A and increases the inflation rate... Unemployment Rate (percent) 0 Inflation Rate (percent per year) (b) The Phillips Curve Phillips curve (output is 8,000) B 4 6 (output is 7,500) A 7 2

Loanable Funds Real Interest Rate Qty Loanable Funds D1D1 S1S i1i1 Q1Q1 E1E1 Crowding Out? Investment Tax Credit

MONEY MARKET MD Nominal Interest Rate Qty of $ MS i1i1 Monetary Policy:

Euro Price of a dollar Qty of Dollars D1D1 S1S Euro Q1Q1 Graphing Exchange Rates House of Money

Price Level Real GDP AD Y1Y1 LRAS SRAS Economy below Full Employment U.S. dollar depreciates Sample